Consumer Directed Health Plans 101

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What is a Consumer Driven Health Plan (CDHP), also known as a Consumer Directed Health Plan?

A CDHP, such as a Health Savings Account (HSA) or Health Reimbursement Account, or Arrangement (HRA), allows employers, employees, or both to set aside pretax money in order to help employees pay for qualified medical expenses not covered by their health plan.

What is a Health Savings Account (HSA)?

An HSA is an employee owned account designed to work specifically with a Qualified High Deductible Health Plan (QHDHP) to allow tax-free payments of current and future qualified medical expenses. Each year, employees, the employer, or both may contribute an amount up to their health care plan deductible or the annual IRS limit, whichever is less. Contributions are automatically deducted from employee paychecks every pay period and deposited into their individual HSA account. Any unused balances can be rolled over from year to year, continually growing through investment earnings and additional contributions. Employees can take their HSAs with them if they leave your company, but they would need to remain covered by a QHDHP in order to contribute.

What is a Health Reimbursement AccountAlso referred to as a Health Reimbursement Arrangement (HRA)?

Unlike a Health Savings Account, an HRA is employer owned, works with any health plan or no health plan at all, and is solely funded by the employer with tax free, pretax contributions. Employees benefit from tax free reimbursements of qualified expenses up to their annual plan deductible, or a limit determined by the employer. The employer also decides whether any unused funds can be rolled over from year to year.

What is the difference between a Health Savings Account and a Health Reimbursement Account?

Direct Comparison Between an HSA and HRA
	HSA	HRA
Can be funded by anyone	Can be funded by employer, employee, or both.	Employer funded only
Can be used with any type of health plan	A qualifying high-deductible health plan For more about high-deductable health plans, speak with a licensed Paychex Insurance Agency Representative at 877-393-8868. is required in order to qualify for an HSA.
Qualified expenses	Any otherwise un-reimbursed expenses are qualified as defined under section 213(d) of the Internal Revenue Code. Exceptions apply. Call us at 877-393-8868 for details.	Employers may configure account to reimburse all or some un-reimbursed expenses as defined under section 213(d) of the Internal Revenue Code. Exceptions apply. Call us at 877-393-8868 for details.
Unused amount carries over to the following year		Employer may configure the HRA to allow unused funds to be carried over.
Account is portable between employers
Tax savings tool	Employer and employee salary reductions are tax free in conjunction with a section 125 plan. If contributions are made outside of a section 125 plan, the individual can take a deduction on their personal taxes at the end of the year.	Employer contributions are tax free. There are no employee contributions.
Can have unlimited contribution amounts	Contributions are restricted by IRS guidelines2009 $3,000 for single coverage $5,950 for family coverage 2010 $3,050 for single coverage $6,150 for family coverage .	Any restrictions are determined by the employer.
Catch-up contributions allowed for older workers	$1000 for individuals 55+ years of age.
Can be integrated with other accounts	An HSA can be integrated with an HRA or Flexible Spending Account within certain limitations. Call us at 877-393-8868 for details.	An HRA can be integrated with an FSA, and within certain limitations, an HSA. Call us at 877-393-8868 for details.

What is a High Deductible Health Plan (HDHP)?

An HDHP features higher annual deductibles for single or family coverage than other traditional health plans. The maximum out-of-pocket limits for HDHPs are also higher. Depending on the HDHP you choose, you may have the choice of using in-network and out-of-network providers. Using in-network providers will save you money. With the exception of preventive care, you must meet the annual deductible before the plan pays benefits. Preventive care services are generally paid as first dollar coverage, or after a small deductible or co-payment. A maximum dollar amount may apply.

Enrollment in a Qualified High Deductible Health Plan is required in order to make deposits into a Health Savings Account (HSA). For a high-deductible health insurance policy to qualify, the deductible and annual out-of-pocket expenses must meet specific IRS guidelines.

For more about qualified high-deductible health plans, speak with a licensed Paychex Insurance Agency Representative at 877-393-8868.

What are the benefits of a Consumer Directed Health Plan?

Consumer Directed Health Plans are an excellent way for employers and employees to reduce the cost of health insurance and save social security (FICA) taxes.

• Contributions are made pretax, reducing gross income and resulting in tax savings for the employer and/or employee, depending on the CDHP.
• Unused contributions may be carried over to future plan years in terms of an HSA, and at the employer’s discretion in the case of an HRA.
• Distributions are tax free for qualified medical expensesCall us at 877-393-8868 for details..
• Any interest or earnings from account assets are also tax free.
• CDHPs may be transferred between employers, making the ability to roll over funds from year to year even more valuable.

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