Consumer-Driven Health Products . . .

are much more than a passing fad! They hold great promise for employers who want to gain control over escalating employee health plan costs.

Consumer-Driven Health Plans (CDHP) strive to educate employees and encourage them to become more involved in the health care decision-making process. Employees are much more likely to compare treatment plans, review the services available to them, and control costs because they know:

· Their health account dollars will roll over from year to year and can be saved for a rainy day; and

· They must meet a higher deductible before their health plan begins to cover expenses.

The typical CDHP is a high deductible plan combined with either a Health Savings Account (HSA) or a Health Reimbursement Arrangement (HRA)

Health Savings Account (HSA)

A HSA is a tax-exempt account created exclusively to pay for the qualified medical expenses of the account holder and his or her spouse or dependents.

A HSA is a tax-exempt account created exclusively to pay for the qualified medical expenses of the account holder and his or her spouse or dependents.

Health Savings Accounts, the newest tax-favored medical savings accounts, are permanent, portable and available to everyone — individuals and employers — with qualified high deductible medical plans.

Health Reimbursement Arrangement (HRA)

A HRA is an employer funded account that reimburses employees for qualified medical care expenses, typically combined with a HDHP. An HRA can be used with any medical plan, but must be established and funded soley with employer dollars. At the employer's discretion, an HRA may allow employees to roll over unused funds from year to year, or allow terminated employees to spend their unused balances.

Flexible Spending Arrangement (FSA)

A FSA is a type of cafeteria plan authorized under Section 125 of the Internal Revenue Code. Separate accounts can be set up to cover each of the following types of expenses:

1. Health insurance premiums (known as a "premium-only plan")

2. Qualified medical expenses

3. Dependent care expenses

HSA's and HRA's are both Consumer-Driven Health Plan alternatives but they are different in many ways and offer unique opportunities for ABC members:

· HRA's are established with employer only dollars and they do not need to be pre-funded.

· HSA's do not require employer involvement, they can be funded entirely by the employee or by a combination of employer and employee dollars.

· HSA funds are held in an IRA-like account for the exclusive use of the participant, so they are fully portable. (When employees terminate, they take their unused HSA funds with them.)

· An HSA must be set up in conjunction with a specific type of High Deductible Health Plan (HDHP).

· An HRA may be used in conjunction with any type of Health Plan, but is generally linked to higher deductible plans.

· Employer contributions to HRA's and HSA's are not subject to income, FICA, Medicare, or FUTA taxes.

· HSA contributions may be made by employees on a pre-tax basis through a Section 125 Plan, or may be made directly by eligible individuals and deducted from gross income. Earnings on amounts held in a HSA accrue tax-free