According to a 2022 Forbes Advisor survey, about 77% of 2,000 insured respondents couldn’t define “coinsurance,” while another 46% couldn’t describe “copayment.” When asked what they understood about Health Savings Accounts (HSAs), more than half of respondents either described attributes of Flexible Spending Accounts (FSAs) or admitted they didn’t know the particulars of HSAs.
Considering the number of complex concepts and terms inherent to insurance, it’s no wonder so many people are confused by their coverage. But when it comes to insurance and healthcare, knowledge truly is power. Just as health literacy enables people to make more informed decisions about their medical care, health insurance enables them to select the coverage that works best for their needs. With that in mind, let’s review a few types of patient financing tools and how they can be used to promote employee financial wellness.
HSAs, FSAs, Health Reimbursement Arrangements (HRAs), and Health Payment Accounts (HPAs) all fall under the bucket of patient-financing tools. Eligible employees can use them to pay for health-related expenses, such as deductibles, copays, and prescription drug costs. However, the “right” tool for a given situation varies based on each person’s unique needs. When helping employees determine which financial wellness benefit is right for them, it’s best to focus on the facts.
Health Savings Accounts
In the world of financial wellness programs for employees, HSAs are quite popular. They are tax-deductible personal savings accounts, which means contributions are not taxed — neither are investment growth within the account or withdrawals for qualified health expenses, which is why many people praise the triple tax advantage of these accounts. They’re also employee-owned and funded, so employees who switch jobs are able to take their HSAs with them.
Employees shouldn’t worry about draining their HSA reserves by the year’s end because unused funds roll over. It’s important to note that an employee must be enrolled in a high-deductible health plan (HDHP) to contribute to an HSA. As long as they’re on an eligible plan, they can contribute up to $3,550 per year and invest those funds in stocks and bonds to continue growing their wealth.
Flexible Spending Accounts
There’s a reason so many respondents confused HSAs with FSAs in the survey we mentioned earlier: They share some key functions. For instance, both allow participants to contribute funds on a pre-tax basis to cover qualified health costs. But when you look at HSAs vs. FSAs more closely, these healthcare-expense accounts are markedly different.
For one thing, FSAs are employer-owned. This means an employee forfeits unused FSA funds if they leave a company. Employees also don’t need to enroll in HDHPs to contribute to FSAs, though their contributions are capped at $2,750 per year.
Finally, rollover rules are quite different between FSAs and HSAs. FSA participants’ funds expire at the end of the year unless their employers allow up to $550 of unused funds to roll over or permit a 2.5-month grace period in the new year.
Health Reimbursement Arrangements
HRAs are employer-owned and funded, which means employers are free to decide how much they want to contribute to each employee’s HRA based on worker classification. While that amount can vary by classification, it must remain consistent across a given classification.
While employers can contribute different amounts to their full-time and part-time employees, they can’t contribute different amounts to different full-time employees. Unlike HSAs and FSAs, there’s no limit on how much an employer can contribute annually. They also have a say in whether unused HRA funds can roll over into the new year.
Health Payment Accounts
Of the four patient financing tools, you might be least familiar with Health Payment Accounts (HPAs). This new type of financial wellness benefit allows employees to tap into a revolving line of credit to cover a range of out-of-pocket health expenses, including medical, pharmacy, dental, vision, and veterinary care.
An HPA gives people the power to pay for care regardless of whether a provider is in their insurance network — all that matters is that the provider accepts Visa cards and falls within the covered categories. Then, the employee simply selects an interest-free payment plan that works for their financial situation.
We’re admittedly biased, but we believe Health Payment Accounts can have a tremendous impact on employee financial wellness. Even if employees already contribute to an HSA or FSA, they can still benefit from an HPA. They can pay for care using their HPAs and use these tax-advantaged financial wellness benefits to build wealth. HPAs also don’t follow the same qualifying expense guidelines as HSAs or FSAs, so employees can use their HPAs to address care costs that might not normally be covered.
The health insurance industry has a language packed with enough jargon and acronyms to make the average consumer’s head spin. As part of their employee benefits management duties, it’s up to employers to close any associated knowledge gaps. When employees are well-versed in the financial wellness programs available to them, they’re in a better spot to choose the coverage that suits their needs.