Healthcare benefit plans can offer many types of employers an efficient way to help employees cope with certain expenses that pertain to healthcare. They are also sometimes called health cash plans and should not be compared to private medical insurance plans.
Healthcare benefit plans are quite popular among smaller sized businesses and they offer employers an attainable and affordable way to offer employee healthcare benefits. If you want to understand how this type of benefit plans work, this simple guide will school you through the important basics.
What is a Healthcare Benefit Plan?
This type of plan focuses on the provision of tax-free money for an employee’s out-of-pocket healthcare expenses. In some cases, the coverage can include individual health insurance premiums too.
What are the Common Healthcare Benefit Plans?
There a number of plans that are available today and the most common ones include:
- Health Reimbursement Arrangements (HRAs)
- Health Reimbursement Plans (HRPs)
- Health Flexible Spending Accounts (FSAs)
- Health Savings Accounts (HSAs)
Health Flexible Spending Accounts
These benefit plans are established by employers to allow tax-free reimbursement of eligible healthcare expenses. More often than not, FSAs are funded by employees and the annual contributions are capped at $2,500, as of 2015. The funds will be tied to employment.
Health Savings Accounts
These are individual bank accounts that will be owned by employees to facilitate tax-free reimbursement or payment of approved out-of-pocket healthcare expenses and even health insurance premiums. With an HSA, employees are required to enroll in a high-deductible health plan with a contribution limit of $3,350. The funds will be owned by the employees and are not tied to employment.
Health Reimbursement Accounts
HRAs, also known as Health Reimbursement Accounts, are benefit plans that allow employees to reimburse out-of-pocket medical expenses that are approved. With HRAs, employees may not need to contribute as much, as all contributions must come from the employer.
The employer will own the funds and the pre-funding of external bank accounts are not necessary. Additionally, there is no maximum or minimum contribution amounts. It is common to pair a high-deductible health insurance plan with an HRA to reimburse employees for deductible expenses.
Health Reimbursement Plans
Simply known as HRPs, these benefit plants facilitate tax-free reimbursements of preventive care and health insurance premiums. Just like HRAs, HRPs have no maximum or minimum contribution amounts. Employers also do not need the pre-funding of third-party bank accounts.
What Type of Plan Should Your Business Go For?
When you are determining the ideal benefit plan is for your employees and company, you can consider the following factors:
- Maximum contributions on an annual basis
- Individuals who may contribute
- Tax treatment
- Necessity of pre-funding accounts
- Management and administration requirements
- Requirements pertaining to an employee eligibility
- The need for specific type of health insurance plan
- Employer contribution costs
- Approved healthcare expenses
- Rollover of funds