Preferred provider organizations (PPOs) generally offer a wider choice of providers than HMOs. Premiums may be similar to or slightly higher than HMOs, and out-of-pocket costs are generally higher and more complicated than those for HMOs. PPOs allow participants to venture out of the provider network at their discretion and do not require a referral from a primary care physician. However, straying from the PPO network means that participants may pay a greater share of the costs. Many PPOs available to businesses and individuals reimburse 60 percent of out-of-network costs and 80 percent of in-network costs (with the employee responsible for the remaining 40 percent or 20 percent). These percentages may be applied to full charges ("sticker" prices), discounted fees that the health organization has negotiated with providers ("negotiated fees"), or regional average fees ("allowable" or "usual and customary" amounts).
POINT-OF-SERVICE PLANS (POS)
A point-of-service plan (POS) is a type of managed care plan that is a hybrid of HMO and PPO plans. Like an HMO, an in-network physician is designated by a participant as his/her primary care provider. But like a PPO, patients may go outside of the provider network for health care services. When patients venture out of the network, they'll have to pay most of the cost, unless the primary care provider has made a referral to the out-of-network provider. The medical plan shortly thereafter steps in and picks up the tab.
HIGH DEDUCTIBLE HEALTH PLANS AND HEALTH SAVINGS ACCOUNTS (HDHPs and HSAs)
A HDHP is a health plan with deductibles of at least $1000 for single coverage and $2,000 for family coverage. Typically, the deductibles are considerably higher than the minimum levels. Total out-of-pocket expenses (deductibles, co-payments, etc.) cannot exceed $5,000 for an individual and $10,000 per family. The deductible and out-of-pocket limits are indexed annually for inflation. HDHPs can, but are not required to, provide first dollar coverage for specified preventive care services. The deductible must apply to all services and medical expenses, including most prescription drug expenses, other than expenses incurred for preventive care.
What is a Health Savings Account (HSA)?
An HSA is an individual health spending account that is owned by the employee and may be used for the payment of current and future medical expenses, or as retirement income.
Who is eligible to participate in an HSA?
HSAs are available to anyone under age 65 who is enrolled in a HDHP, who is not covered by other health insurance (except for insurance that provides preventive care or specific disease coverage), and who cannot be claimed as a dependent on someone else's tax return. Although individuals 65 and older are prohibited from establishing or joining employer-sponsored HSAs, they may continue to use funds from their existing HSAs after age 65.
Who can contribute to the HSA?
Individuals and/or employers can make pre-tax contributions in amounts equal to the HDHP deductibles but not more than $2,600 for individuals and $5,150 for families in 2004 (employer and employee contributions combined.) Employers must make comparable contributions on behalf of all participating employees. HSAs must be funded through a trust or custodial account similar to a deferred compensation or 401(k) account.
What are the uses of HSA funds?
Funds from the account can be used to pay for qualified medical expenses (medical care, prescription and non-prescription medications), and premiums for long-term care insurance. Qualified expenses, when covered under a traditional health insurance policy, include most benefits ordinarily not considered as taxable income to employees. HSA funds may not be used to pay health insurance premiums except when receiving unemployment compensation, COBRA coverage, or retiree health insurance (including Medicare Part B premiums). Funds may not be used for Medigap premiums.
What is the tax treatment of HSA funds?
HSA funds are fully vested and may be carried over from year to year and are portable from employer to employer. Funds are not subject to taxation as the account grows or when it is used to pay for eligible medical expenses. HSA participants can use accumulated funds to pay for qualified medical expenses during their working career or retirement. Distributions for non-health expenses are subject to income tax and a 10 percent penalty. However, the penalty does not apply after death, disability or after an individual attains Medicare eligibility (age 65).
HEALTH REIMBURSEMENT ACCOUNTS (HRAs)
HRAs are conceptually similar to HSAs but are completely controlled by the employer. HRAs are also used to pay for qualified medical expenses, but may be used to reimburse employees for the purchase of health insurance as well. Unlike HSAs, there is no requirement that these accounts be pre-funded, vested or linked to a HDHP. Typically, the employer does not specifically set money aside for covered individuals; rather, he or she reimburses employees for eligible medical expenses from general operating funds. Although not required, HRAs are usually accompanied by a high deductible health plan. Even though HRAs have been available for years, they have never been popular, probably because employee contributions are prohibited.
Features of an HRA include:
Tax-free withdrawals for qualified medical expenses
Carryover of unused credits, without limit, from year to year
Credits in an HRA do not earn interest
Credits in an HRA are forfeited if you switch health plans, or if you leave federal employment other than to retire
Who is eligible for participation and who funds HRAs?
HRAs are only available through an employer and must be funded solely by the employer. The employer owns the account — unlike HSAs, which are owned by the individual.
Can HRA funds be rolled over from year to year?
At the employer's discretion, money remaining in the account at year's end can be carried over to the next plan year. If the employer does elect to allow carry-overs, the employer may cap the carry-over amount.
Are HRAs portable?
Because the employer retains ownership of the HRA, rollovers to a new employer's HSA or HRA are at the employer's discretion. Likewise, the employer decides whether to allow employees to access any funds remaining in his or her account at termination or retirement. If the employer decides to give former employees access to their accrued HRA money, and it's used for non-medical expenses, such as a severance package, all amounts paid by the entire plan become immediately taxable, including prior medical reimbursements.
