Friday, September 29, 2006

Consumer-Driven Health Plans

We all hear so much about consumer-driven health plans. The following is the low-down on HSAs and HRAs:
Health Savings Accounts (HSA)
A Health Savings Account works like an IRA, except the money is used to pay health care costs. Participants must enroll in a high deductible insurance plan. Then, a tax deductible savings account is opened to cover current and future medical expenses. The money deposited, as well as the earnings, is tax-deferred. The money can then be withdrawn to cover qualified expenses tax-free. HSAs are an expansion of Medical Savings Accounts (MSAs). The employer, employee or combination of both can fund HSAs within the same calendar year.
The pros: Unused money can be rolled over and used in subsequent years.
The cons: The plan can only be used in conjunction with a high-deductible insurance plan. The first few months may be difficult for many employees until they get a chance to accumulate savings in their accounts.
Health Reimbursement Arrangements (HRA)
A health reimbursement arrangement is an employer-funded account that reimburses employees for qualified medical expenses. These plans can only be established by an employer for the employee.
The pros: Employers can utilize program to soften the blow of rising insurance plans.
The cons: Employees will forfeit any unused funds if they leave the company or die.

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