Health insurance costs in the U.S. are rising at an exponential rate. As such, employers are adopting account-based health plans (ABHPs) as a strategy to lower the cost of healthcare without reducing coverage for employees. Account-based health plans are increasing in popularity, especially in light of the changes due to the Affordable Care Act (ACA). The following article provides a brief overview of the four main types of medical spending accounts used with ABHPs.
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What Is an Account-Based Health Plan?
An ABHP is a consumer-directed strategy that pairs a group health insurance plan with a tax-advantaged medical spending account. With a total-replacement ABHP, the medical spending account is offered as the main health benefit plan - instead of a group health insurance plan.
According to the Tower Watson/NBGH Employer Survey on Purchasing Value in Healthcare (2013):
66% of employers had an ABHP in place in 2013
13% expect to add an ABHP in 2014.
Total-replacement ABHPs are also on the rise. Nearly 15% of employers with an ABHP use a total-replacement ABHP, up from 7.6% in 2010.
Health Savings Accounts (HSA)
HSAs are individual bank accounts owned by employees that allow for tax-free payment or reimbursement of eligible medical expenses. An employer usually offers an HSA-qualified high-deductible health plan and an HSA.
Health Reimbursement Arrangement (HRA)
HRAs are employer-funded, tax advantaged employer health benefit plans used to reimburse employees for eligible medical expenses. With an “Integrated HRA,” the HRA is paired with a high-deductible health insurance plan to reimburse employees for their deductible expenses.
With a “Stand-alone HRA,” the HRA is a total-replacement ABHP and is used to reimburse employees for eligible individual health insurance premiums and medical expenses. As of 2014, however, health reform has placed limitations on the use of Stand-alone HRAs for most employers. Types of stand-alone HRAs that are compliant under health reform include Retiree HRAs and One-Person Stand-alone HRAs.
Healthcare Reimbursement Plan (HRP)
HRPs are employer-funded, tax advantaged employer health benefit plans used to reimburse eligible employees for individual health insurance premiums and preventive care. HRPs are specifically designed to comply with new Affordable Care Act rules and regulations. HRPs are a type of total-replacement ABHPs. This type of approach is also referred to as a "pure" defined contribution health plan or a premium reimbursement plan.
Health Flexible Spending Account (FSA)
Health FSAs are employer-established benefit plans that allow for tax-free reimbursement of qualified medical expenses.