Health Insurance Specialists - Alternative Funding for Group Insurance Plans - HSA's, Consumer Directed Health Plans (CDHP's), FSA's, HRA's, Self-Funded, etc.

FSA - Flexible Spending Accounts
formerly known as Cafeteria Plans, this allows Employees to set aside money (pre-tax) for anticipated expenses, such as daycare, healthcare premiums & unreimbursed medical expenses.

Tax favored status
- Permitted under IRC Sections 79, 105, 106, 125 and 129
- Employees save Federal, State & FICA taxes
- Employers save the matching FICA tax
Contributions
- Employees contribute, using pre-tax payroll deductions, according to their planned needs for the contract year. (Employers are not required to contribute)
Distributions
- Can be used for unreimbursed medical expenses, child daycare, and some premiums. Employer sets the parameters.
- Employees must "use it or lose it". Unused funds belong to the Employer. No "cash back" policies allowed.
Ownership, Portability & Administration
- The fund is owned by the Employer, and is not portable, but may be eligible for COBRA
- Administration is done by the Employer, or by a Third Party Administrator selected by the Employer
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HRA - Health Reimbursement Arrangements
Allows the Employer to use a non-taxable fund to pay for Employee healthcare expenses. Often the Employer pairs this with a High Deductible Health Plan, to protect against large losses. It saves premium, and allows the Employer to engage in a small amount of "Partially Self-Funding".

Tax favored status
- IRS qualified plan
- Tax-Deductible to the Employer
- Non-Taxed to the Employee
Contributions
- Employer contributes. Employee contributions are not allowed. Employer can set limits on the contribution.
Distributions
- Employer sets the parameters for eligible expenses.
- Can be used for any type of healthcare expense allowed under Section 213(d), including dental, vision, chiropractic, etc.
- Unused funds belong to the Employer, and can be rolled over to the next year. Although funds may roll-over for the Employee's use during the next contract year, Employees may not receive "cash back" for amounts they did not use.
Ownership, Portability & Administration
- The fund is owned by the Employer, and is not portable.
- Administration may be done by the Insurance Company, if the HRA is integrated with a Health Insurance Plan. Otherwise, it is done by the Employer, or by a Third Party Administrator selected by the Employer
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HSA - Health Savings Account
Designed to encourage good consumer habits, an HSA uses a cash fund, owned by the Employee, as an incentive to save. It pairs a High Deductible Health Plan with a cash account that accrues to the Employee's benefit. If the Employee is a good consumer, the Employee reaps the benefit of a growing cash fund. HSA's allow flexibility, tax savings & premium savings for both the Employer & the Employee. HSA's can also be purchased by Individual/Families..

Tax favored status
- IRS qualified plan
- Employer Contributions are Tax-Deductible as a business expense
- Employee Contributions are Tax-Deductible (Federal & State taxes)
- If Employee Contributions are deducted through a Section 125 plan, the Employee & Employer also save FICA taxes
- Distributions are Non-Taxed to the Employee if used for qualified expenses
- Interest accumulated on the funds are tax-deferred
Contributions
- Employer and/or Employee may contribute
- An "Employer match" is allowed through a Section 125 plan
- Employer contributions must be comparable & non-discriminatory among employees
- Total contributions are limited by IRS law to the lesser of the annual deductible or $2,650 for an Individual or $5,250 for a family
- Contributions are only allowed for those persons who are covered under a qualified High Deductible Health Plan
Distributions
- Amounts used for qualified healthcare expenses are not subject to Federal or State tax, nor to an excise penalty tax.
  - Qualified expenses include those listed under IRC Section 213(d), and they include dental, vision, chiropractic, etc.
- Amounts used for any other reason are subject to income tax, and to a 10% excise penalty tax, unless withdrawn after the age of 65
- Unused funds roll-over and accumulate to the benefit of the Employee
Ownership, Portability & Administration
- The fund is fully owned by and controlled by the Employee. It is fully portable from job to job.
- The Employee controls the banking & investment of the fund
- Administration is the responsibility of the Employee, however, most plans offer simplified administration, or the Employer may select a Third Party Administrator.

More details about HSA's, including links
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CDHP's - Consumer Driven Health Plans
The term "CDHP" is a general concept. These plans give the consumer an incentive to make wise healthcare choices. Most often, CDHP's provide a "fund" for healthcare expenses, which can be used today, or saved for tomorrow. The "fund" may be integrated into a health plan administered by the Insurance Company, or it may be a side account provided by the Employer through an HRA. CDHP's can also be purchased by Individual/Families.

Tax favored status
- IRS Qualified, usually as an HRA
- If Employer Contributions are required, they are tax-deductible
Contributions
- If it's an "Integrated" plan, through an Insurance company, then no Employer Contributions are required into a fund.
- If it's through an HRA, Employer contributions are required.
Distributions
- If the CDHP is "Integrated", the Insurance Company sets the parameters.
  - Most often, the funds can be used for Preventive Care, and most "first-dollar" expenses such as Doctor visits, prescriptions, etc.
  - Some plans allow the funds to be used for any healthcare expense that is covered under the insurance policy, including hospitalization.
  - Unused funds belong to the Insurance Company, although they accumulate on the behalf of the Employee as long as he/she is insured under that health insurance policy.
- If the CDHP is provided through an HRA:
  - Funds can be used for any type of healthcare expense allowed under Section 213(d), including dental, vision, chiropractic, etc. The Employer sets the parameters.
  - Unused funds belong to the Employer, and can be rolled over to the next year. Although funds may roll-over for the Employee's use during the next contract year, Employees may not receive "cash back" for amounts they did not use.
Ownership, Portability & Administration
- If it is "Integrated", the fund is owned by the Insurance Company, and is not portable, but may be eligible for COBRA.
- If it is an HRA, administration may be done by the Employer, or by a Third Party Administrator selected by the Employer.
  - Some plans are designed by the Insurance Company, using an HRA. In this case, the Insurance Company provides the administration, but the fund belongs to the Employer.
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Self-Funded or Partially Self-Funded
including ASO (Administration Services Only)
Large Employers often Self-Fund. Even smaller Employers participate in Partial Self-Funding, with various types of insurance to protect them from large losses.

The basic level of Self-funding provides:
- A benefit design that is attractive to the Employee, such as low deductibles, copays & high level of benefits.
- Claim payment provided by the Employer.
The next level of protection is ASO (Administrative Services Only) which provides:
- Administration of the claims handling process
- Networks of Preferred Providers
- Optional Stop-Loss Insurance
Partially Self-Funded arrangements give an additional level of protection, which provides:
- A "Specific" Stop Loss, in case one specific claim reaches a catastrophic level. That catastrophic level is chosen by the Employer, but is often between $10,000 and $100,000.
- An "Aggregate" Stop Loss, or "Attachment Level", which limits the amount of claims the business could incur if there were more than one catastrophic claim.
- A provision to pre-pay claims, in case claims were high during the first part of the contract year, before there was ample time to establish a fund >>>>> enough to pay the claims
- A Run-Out and/or Run-In provision, in case the Employer switches Insurance policies. These policies only cover claims that are PAID during a contract year, regardless of when the medical services was provided. A Run-Out provision is provided by the former Insurance Company, and it accepts claims that were incurred during the contract year, and which are submitted for payment within 3 months following the contract year. A Run-In provision is provided by the new Insurance Company, and it accepts claims that were submitted for payment during its new contract year, if the medical service was incurred in the 3 months prior to the contract year.
Ownership, Portability & Administration
- Most often, the self-funding arrangement is transparent to the Employee. The Employee is provided a Benefit Summary, detailing his/her benefits, but not disclosing the self-funding arrangement.
- Any claims savings belongs to the Employer.
- Administration may be handled by an Insurance Company or a Third Party Administrator, and rarely by the Employer.
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Section 125 Premium Only Plan (POP)
also known as a Tax-Free Premium Plan, this Program allows Employees to use Pre-tax dollars for their Payroll-deducted premium. It not only saves Federal, State & FICA taxes for the Employee, but it also saves the Employer the matching 7.65% FICA tax.

Tax favored status
- Permitted under IRC Section 125
- Employees save Federal, State & FICA taxes on payroll-deducted premiums
- Employers save the matching FICA tax
Contributions
- Premiums that are payroll-deducted are converted to "pre-tax" instead of "after-tax".
Distributions
- Must be used for premiums for health, dental, vision, disability, and some life insurance.
Ownership, Portability & Administration
- There is no fund balance - all funds must be used for premium payments.
- Administration is done by the Employer or a third party.
More details about Section 125 Premium Only Plans
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Voluntary plans
Most large Employers give their Employees a menu of options, from which they can choose insurance programs that they purchase through payroll-deduction. Also known as Supplemental Plans, or Payroll-Deduction plans.

Some plans require no Employer Contribution, but allow Employees to enroll voluntarily, provided that they pay the premium through payroll deduction. Most often, these are Dental, Vision, Life or Disability Insurance plans, but not health insurance

Other plans allow low Employer Contribution. Most often, the minimum Employer Contribution is 50% of the Employee premium. The Employee pays the other 50%, plus the cost of adding his/her dependents.

Sometimes, an Employer can lower costs by providing minimum Contribution to a low-benefit plan, but allowing Employees to "buy-up" to a higher benefit plan.

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