Making decisions about what options and offers an employer will make to employees can be somewhat complicated. This is largely because no two people are the same, and not all employees have the same health coverage needs.
Of the many options available for small group healthcare coverage, the most popular choices for health plans are:
- Preferred Provider Organization (PPO) Plan
- HMO Plan
- Point of Service (POS) Plan
We’ve discussed the details of these common types of health plans in previous articles, but to recap, a PPO, or preferred provider organization, is a type of health plan that contracts with medical providers, such as hospitals and doctors, to create a network of participating providers. You’ll pay less if you use providers that belong to the plan’s network.
An HMO, or health maintenance organization, is a health insurance plan that usually limits coverage to care from doctors who work or contract with an HMO. It generally does not cover out-of-network care except in emergency situations. In addition, the HMO may require you to live or work in its service area to be eligible for coverage.
A point-of-service (POS) plan is a plan that allows you to pay less if you use doctors, hospitals, and other health care providers that are in the plan’s network. Point-of-sale plans also require you to get a referral from your primary care physician in order to see a specialist.
But employers can also consider offering what are known as health savings accounts, or health savings accounts.
Understand the role of an employee health savings account
In addition to the more “traditional” types of health coverage plans that most people are familiar with, a health savings account is an alternative that you, as a business owner, can make available to your workers.
According to Heatlhcare.gov websiteHSA is,
“A type of savings account that allows you to set aside money on a tax basis to pay for qualified medical expenses. By using the non-taxable dollars in a health savings account (HSA) to pay deductibles, copayments, coinsurance, and certain other expenses, you may be able to lower your overall health care costs. It may not HSA funds are generally used to pay insurance premiums.”
While employees can use the money in the HSA at any time to pay for qualified medical expenses, they may contribute to the HSA only if you have a high-deductible health plan (HDHP)—generally a health plan (including a market plan) that only covers pre-deductible preventive services .
Most often, the strategy used by those who want to use a health savings account (HSA) is to manage their health care expenses by enrolling in a high-deductible health plan (HDHP) and opening a health savings account (HSA).
HDHP is simply a plan with a higher deductible than a traditional insurance plan. While the monthly premium is usually lower, the employee will pay more out-of-pocket health care costs — deductible — before their insurance company starts paying their share.
A high deductible plan (HDHP) is usually combined with a health savings account (HSA), allowing the employee to pay for certain medical expenses, excluding their premiums, with non-taxable money.
Advantages and disadvantages of an HSA for your employees
As noted here, a health savings account is a tax-advantaged savings account used to pay for medical expenses. It is usually only available to individuals with high deductible health plans, and is designed to help those individuals pay for their medical expenses while saving on future medical expenses.
while HSAs are become more popular As people look for ways to manage healthcare costs and reduce their tax burden, some pros and cons should be considered before opening one.
On the plus side, HSAs offer these benefits:
- Tax advantages: Contributions to HSA are tax deductible, and withdrawals for qualified medical expenses are tax deductible. This means that employees can reduce their taxable income and save money on taxes.
- Savings for future medical expenses: HSAs allow workers to save money tax-free for future medical expenses, which can be especially valuable if they have a chronic condition or anticipate significant medical expenses.
- Flexibility: Unlike many other healthcare savings accounts, an HSA does not have a deadline for using the funds. This means that the money “rolls” from year to year so that workers can use the money they save for medical expenses at any time, even if it may be years from now.
- Mobility: HSAs are owned by the individual, not the employer, which means that an employee can take an HSA with them if they change jobs or leave the workforce.
On the downside, HSAs have some potentially negative traits that you should be aware of:
- High-deductible health plan requirements: In order to contribute to an HSA, the employee must also have a high-deductible health plan (HDHP). HDHPs can be a good choice for healthy individuals who do not anticipate exorbitant medical expenses, but they may not be the best choice for those who suffer from chronic diseases or who anticipate exorbitant medical costs, such as elderly workers.
- Contribution limits: There are limits to how much an employee contributes to an HSA each year, and those limits are lower than some other healthcare savings accounts.
- Non-medical withdrawal penalties: If a worker withdraws money from an HSA for non-medical expenses before age 65, they will have to pay taxes on the withdrawal plus a 20 percent IRS penalty.
- Limited investment options: Some HSA providers limit the investment options available to HSA funds, which may limit an employee’s ability to grow their savings.
The bottom line here is that while an HSA can be a valuable tool for managing healthcare costs and saving on medical expenses in the future, it’s not right for everyone.
If you’re considering offering a HAS option to your employees, be sure to carefully weigh the pros and cons by speaking with a financial advisor or professional health insurance broker to determine if this is the best option for your company.
Make the right health insurance choices with JC LEWIS INSURANCE
JC Lewis Insurance is a longtime family business of expert brokers based in Sonoma County. We only offer California health insurance plans from leading health insurance companies that are licensed to do business in California.
And we are licensed and approved by each of these insurance companies to offer coverage to small group employers, along with complementary drug plans and prescription drug plans for seniors.
If you are self-employed or are an employer that does not currently offer employee health benefits, there are many options available for your workers as well as for you and your family. So whether you’re deciding between an HMO plan, a PPO plan, or even an HSA/HDHP, we’ve got your back.
When shopping for medical insurance for you and your family, you are likely to have many questions and concerns. This is great because we welcome your questions about health coverage insurance, and you can be confident that JC Lewis Insurance Services will help you find the right solution.