For many employers, autumn isn’t just about football, warm sweaters, and brightly-colored leaves.  It’s also the season for designing an employee benefits package for the new year.  And like those leaves drifting to the ground, acronyms are swirling all around us:  FSA, HRA, HSA, POP, HDHP, LOL, OMG (oops…wrong blog…those last two don’t belong here!).

This is the first of three posts where we’ll take a look at two benefits that can help your employees when you have a health plan with a higher deductible.  We’ll also compare them to help you determine which one is best for your company and employees.

Let’s start with the HSA (Health Savings Account).

First and foremost, in order to have an HSA, you must have a high-deductible health plan (HDHP).    For 2013, the plan must have a minimum annual deductible of $1,250 for employee-only coverage and $2,500 for employee/dependent(s) coverage.  The plan must have an out-of-pocket limit that does not exceed $6,250 for employee-only coverage and $12,500 for employee/dependent(s) coverage.  Most plans that have these parameters are clearly labeled as HSA-eligible health plans.  One of the most important features of the HDHP is that the employee must be responsible for first-dollar expenses.  That means, until the deductible is reached, there can be no other insurance coverage that pays any part of that amount (no flexible spending account (FSA) or health reimbursement account (HRA), for example).

Now to the details of the HSA account itself.  Both the employer and the employee may contribute to an HSA.  If the employer contributes, it must do so equitably.  In other words, the company can’t give different amounts to different employees unless it is based on employment status, single vs. family coverage, etc.

If the employee has employee-only coverage, the account may have contributions of up to $3,250 for 2013.  For employee/dependent(s) coverage, contributions may be up to $6,450.  And if the employee is 55 or older, an additional contribution of up to $1,000 may be added.  These amounts can be any combination of employer and employee funds.  And, the contributions are tax-free (we’ll get into those details in a future post).

When the employee incurs a medical expense the HSA can be used (qualified expenses are defined here: www.irs.gov/pub/irs-pdf/p502.pdf).  For example, if the employee has a prescription (the HDHP does not cover prescriptions until the deductible is met), HSA funds can be used.  The same is true of doctor’s office visits (again, there is no insurance coverage until the deductible is met). 

If the employee does not use all the funds in the HSA during the year, the funds remain in the account and can be used at any future date.  If the employee switches to a non-HDHP plan in the future, no further HSA contributions can be made, but the remaining funds continue to be available for qualified medical expenses.

Most HSAs have a debit card (or checks) attached to the account so the employee can pay for expenses as they occur.  Occasionally, employers will require employees to submit claims for reimbursement from the HSA (although this is rare). 

For employers, here’s a key point to remember:  If you contribute to employees’ HSAs, that money belongs to each employee whether or not they use the funds.  If the employee is terminated, the funds are theirs to keep.

We could go on for pages, but the information above should give you an idea whether you want to consider pursuing an HDHP and HSA for your company.  For complete information, the best and most reliable resource can be found at http://www.irs.gov/publications/p969/index.html. Before making a final decision, be sure to read the next two posts on HRAs and the pros and cons of each of the options.