ERISA/Benefits - Consumer Driven Healthcare
The consumer-driven system of health care was introduced in the 1990's as a business model that would engage consumers more actively in their consumption of health care, and thus, the management of their personal health. The Internal Revenue Code (the Code) provides for a variety of personal account-based arrangements that permit individuals to pay for qualified medical expenses (like health care services, devices and prescriptions) on a pre-tax basis. In contrast to the pure insurance, fixed benefit model of health care, individuals often maintain insurance to cover catastrophic costs while using the consumer-driven health care account for more general expenses.
Health Savings Account (HSA)
A Health Savings Account (HSA) must be used in conjunction with a high deductible health plan (HDHP), which has a lower monthly premium than a traditional health plan. Employee pre-tax and employer contributions are permitted, as well as catch-up contributions for participants age 55 and older. For 2011, the annual maximum for contributions to an HSA is $3,050 for single coverage and $6,150 for family coverage (for 2012, the numbers will be $3,100 and $6,250, respectively). Unused account balances accumulate and roll over from year to year.
Health Reimbursement Account (HRA)
A Health Reimbursement Account (HRA) allows for employer contributions but not employee contributions. Unused account balances can accumulate and roll over from year to year. The employer may limit the types of expenses for which account funds may be used (e.g., copayments, coinsurance, deductibles). HRAs cannot be used in conjunction with an HDHP.
Health Flexible Spending Account (Health FSA)
A Health Flexible Spending Account (Health FSA) also allows for pre-tax contributions, but account balances cannot roll over from year to year (the "use-it-or-lose-it rule"). Before the Patient Protection and Affordable Care Act (PPACA) became effective, there was no statutory annual contribution maximum, although employers could provide for annual limits. PPACA established a $2,500 annual maximum on annual contributions to a Health FSA, effective in 2013.
Archer Medical Savings Account (MSA)
An Archer Medical Savings Account (MSA) is a tax-exempt trust or custodial account established with a financial institution for the payment of qualifying medical expenses of a self-employed individual or the employee of a small employer (generally, 50 employers or less). Like HSAs, Archer MSAs must be used in conjunction with an HDHP. An Archer MSA can be established with a qualified Archer MSA trustee or custodian in a manner similar to the establishment of an individual retirement account (IRA). Employer and employee contributions cannot both be made to an Archer MSA in the same year, and if an employer contributes to an Archer MSA for any employee for a given time period, then the employer must make a comparable contribution available to all employees with comparable coverage during that same period. An Archer MSA is portable, and remains with the employee following a change of employers or leaving the workforce altogether.
For a discussion regarding the IRS’ postponement of Form W-2 reporting of the value of employer-provided health care benefits, see "IRS Form W-2 Reporting for Employer-Provided Health Care Delayed".
