Week 3 Assignment
A new type of third-party-reimbursement healthcare payment plan is emerging in the United States. CDHPs strive to control costs and improve quality of care by requiring consumers to take control of their own healthcare decisions. Consumers decide how they want to spend their healthcare dollars, depending on what is important to them. CDHPs are geared to encourage participants to enroll in some type of wellness program and improve their lifestyles. Specific types of CDHPs are health reimbursement accounts (HRA), flexible spending accounts (FSA), and health savings accounts (HSA).
However, there are concerns about CDHPs. The consumer may neither understand nor have the education and the tools to manage his or her own healthcare appropriately. This may have long-term ramifications on the whole healthcare system and whether CDHPs can be successful for the consumer, the employer, the physician, and the healthcare facilities, as well as the insurers. Answer the following questions in regard to this development:
- Summarize the history of when, how, and why CDHPs were developed.
- Explain HSA, HRA, and FSA with examples.
- Examine different segments of the population. Describe which socioeconomic group is likely to benefit the most from CDHPs.
- Explain the types of incentives to providers for efficiency in the delivery of healthcare services. Explain who bears the financial risk—the provider, the patient, or the CDHP.
- Offer your recommendations for patients considering a CDHP, including which types are appropriate for which patients. Include your recommendations for each, to accept or decline, and also include your rationale behind such recommendations.
Summer, J. & Miller, S. (2011, May 6). Consumer-driven decision: Weighing HSAs v. HRAs. Retrieved from https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/hsasvshras.aspx
To support your work, use your course and textbook readings and also use the South University Online Library. As in all assignments, cite your sources in your work and provide references for the citations in APA format.
- Your assignment should be addressed in an 8- to 10-page document.
- Submit your documents to the Submissions Area by the due date assigned.
HCM 3002 W3A
History of when, how, and why CDHPs were Developed
Consumer-Directed health plans (CDHPs) are a combination of a health insurance plan and an account that is tax-advantaged that enrollees can use to cover or pay for medical expenses not covered by insurance. The most common accounts under CDHPs are the HRA (Health Reimbursement Accounts), HSA (Health Savings Accounts), and FSA (Flexible Spending Accounts) (Sammer & Miller, 2011). CDHPs were introduced and established in the late 1990s by e-commerce ventures with the primary purpose of engaging consumers in a more direct way in their health care purchases (Parente, 2006). This model or plan made cost and quality information evident to the client, mainly through the internet, therefore creating a more efficient healthcare market. Moreover, the development of CDHPs was necessitated by the rising healthcare costs and delivery of quality care concerns. This demanded for ventures like insurance companies to develop CDHP to enhance the delivery of quality care and reduce healthcare costs (Sammer and Miller, 2011).
Explain HSA, HRA, and FSA with Examples
Health Savings Accounts were enabled by a provision of The Medicare Prescription Drug, Improvement, and Modernization Act of 2003. They were first provided by insurance companies in 2004, January. However, employers had to wait for guidance and rules from the IRS and the U.S Treasury, which they issued in mid-2004, before offering these plans (Baker et al., 2007). HSAs are accounts that are available to individuals covered by an HDHP or high deductible health plan. Moreover, they allow individuals to contribute to the account once enrolled in these high deductible health plans (Sammer & Miller, 2011). Employees and employers are allowed to fund HSAs. HSA account funds can be used to cover eligible medical expenses, are portable, and can roll over to the next year if unused. For 2020 and 2021, the individual and family deductibles must be at least $1,400 and $2,800, respectively (Sammer & Miller, 2011). However, the IRS sets some limits on how much money can be saved in an HSA. The limit for individuals and family plans in 2021 is $3,600 and $7,200, respectively. Individuals above the age of 55 years are allowed to add an extra $1,000 to the above figures as their limit (Sammer & Miller, 2011).
HSAs are a way for individuals to reserve funds for medical expenses without paying interest or taxes on the dollars. The funds an individual contributes to their HSA go directly into an account before being taxed. This lowers tax bills as the funds are pre-tax earnings. The individual or account holder can use the money in an HRA to pay for other plan premiums or COBRA if allowed by the IRS. COBRA (Consolidated Omnibus Budget Reconciliation Act) is a health insurance program that allows qualified employees and their dependents continued health insurance coverage benefits when they lose their source of income or experience work hours reduction (Sammer & Miller, 2011). The client can only use money in an HSA for eligible medical expenses and can add money to the account or pay out of pocket. For example, an individual has a deductible of $3,000, and the individual has a healthcare expense of $4,000 the whole year. Through their HSA, the deductible is covered by 80% of the remaining $1,000, which equals $800. Therefore, the amount of money the individual has to pay out of pocket is only $200.
HRAs began to be developed as a result of regulations the IRS provided during 2001 and 2002, which gave guidance on several issues related to these accounts’ tax treatment (Baker, 2007). As a result of IRS guidelines, these accounts are tax-deductible if used appropriately and according to the rules. However, HRAs have a 15% tax if funds in the accounts are used for non-medical purposes or against IRS guidelines (Sammer & Miller, 2011). In an HRA, the employer funds the account (Wilensky, 2006). Moreover, the employer owns the account, meaning that if the employee leaves the company, the money remains with the employer. The yearly employer contributions for HRAs are capped at $5,050 and $10,250 for an individual employee and an employee who has a family, respectively. Moreover, individuals can use the money in an HRA to pay for COBRA or other plan premiums if allowed by the employer. An example of HRA is a case where a medical or health care plan has a deductible of $3,000 and an 80% coinsurance. The employee pays the deductible’s first $500, and the employer pays $3,500 into the HRA to cover the coinsurance and the remaining deductible up to when all the funds are utilized. Most employers use or adopt HRAs to cover reimbursement on medical expenses as the HRA covers both coinsurance and the deductible (Sammer & Miller, 2011).