Speaking

Personnel(ly) Speaking

A Monthly Newsletter from

Personnel Management Systems, Inc.

November 2008

Insurance costs are on the rise…but you have options!

Do you cringe every time your company benefits renew, in anticipation of the increased costs? You are not alone! Insurance costs have been on the rise for years, and the trend continues.

A recent Mercer survey found that “on average, health care costs will go up by an estimated 5.7% next year for both workers and their employers... that follows this year's 5.7% hike and a 6.1% jump in 2007.”[1] This increase does not account for plan design changes that pass along additional out-of-pocket costs to the employees, so in reality, the total increased costs are much higher.

Along with being an expensive benefit, many employers struggle with making decisions regarding insurance benefits because meeting the needs of every employee is nearly impossible. Every employee has different needs and issues; the plan your company offers may not fully satisfy every one.

With that in mind, it is not uncommon to ask yourself questions such as:

What can we do to help our employees with these increased costs?

What can we do to help put the responsibility of benefit decisions back on our employees?

The answer to these questions may lie in the following letters: FSA, HRA, HSA. These acronyms represent several tax-advantaged accounts that employers can set up for employees. Not only do employees get tax benefits for the money they contribute into these accounts, these accounts also allow employees to use the money for medically eligible expenses as they chose! It helps put benefit decisions back in the hands of the employees, where they should be.

What are these accounts and what do they do?

FSA - Flexible Spending Account: This account allows employees to contribute pre-tax dollars to pay for eligible medical expenses. Employees can use money in their FSA to pay for co-pays, deductibles, prescription costs and certain over-the-counter medications.

HRA - Health Reimbursement Account: Unlike the FSA which is funded through pre-tax employee payroll deductions, the HRA is funded by the employer. This allows the employer to contribute toward employee healthcare costs by reimbursing the employee for certain medical-related expenses. An employer may choose a less costly health insurance plan with a higher deductible or more out-of pocket expenses for the employee and then supplement the plan by contributing to an HRA. The employer can put certain parameters around the account, such as limiting reimbursement to co-insurance or deductible costs only.

HSA – Health Savings Account: This account must be coupled with a high-deductible health plan (HDHP). If you offer a high deductible plan for employees, providing an HSA can help offset the amount of the high deductible. Both the employer and the employee can contribute to this account. Distributions are tax-free if taken for “qualified medical expenses” which includes certain over-the-counter drugs.

Selecting a group health insurance plan for your employees is no easy task. Adding an FSA, HRA and/or HSA is a great option to help offset benefit costs and give your employees the decision-making responsibility to spend money toward health insurance costs as they see fit. We encourage you to consider these accounts when discussing your benefit renewal with your insurance broker. Your insurance broker will be able to provide you detailed information about these options.

If you need further assistance in deciding what benefit plans best serve your organization or on any other Human Resource issue, please don’t hesitate to contact Personnel Management Systems, Inc.

Personnel(ly) Speaking is a monthly comment on HR issues of importance. It is intended to provide general information and must not be construed as legal advice. Reproductions are allowed as long as credit for this information is given to PMSI. We welcome your comments, questions, and concerns. © PERSONNEL MANAGEMENT SYSTEMS, INC., Corporate Office (425) 576-1900, Colorado Office (720) 497-0200, www.hrpmsi.com.