What is a HSA? HSA stands for Health Savings Account, and it basically replaces the old MSA’s effective 1-1-04. A HSA is a savings account for medical expenses matched with a high deductible plan. The savings account is owned by the employee, so it is portable. It’s like a 401k account for medical expenses. New changes in 2004 allow for both the employee and employer ability to contribute up to 100% of the deductible amount each calendar year. Not only are covered medical services up to the deductible amount paid out of this account, but other medical expenses like glasses, lasik surgery, orthodontia and dental, which normally are not covered health insurance expenses, can be paid out of this account. The contributions are pre-tax for the employee and a tax deduction for the employer. Contributions that are not used are rolled over to the next year and continues to grow. There is no “use it or loose it” with an HSA.
The HRA account is owned by the employer. In this scenario, the employer can reimburse the deductible portion as it is needed. If the member only goes in for their routine physical, or does not see the doctor that year, the employer or employee have no further expense. The odds are that only 50% or less will engage in medical treatment, so again the savings comes with probability of usage and savings in premium. Contributions towards the deductible that is not used, stays with the employer. With both programs, the insurance industry suggests the employers only reimburse one-half of the deductible amount to encourage smarter utilization by employees. With more consumer engagement the hope is to curb over utilization and encourage wiser spending. One restriction however, is that HRA’s do not allow Sub S corporation owners who own more than 2% of the company stock, to be reimbursed. In this case a HSA plan would be more favorable, or to at least “carve out” the partners to a HSA plan.