The Rise of Account Based Health Plans (ABHP)

Momentum turning into a tidal wave is upon us with employers increasingly offering Account Based Health Plan options. This relatively new term in the wild world of benefits is a pragmatic “catch all” for:

1. Health Savings Accounts – HSAs
2. Health Reimbursement Arrangements – HRAs
3. Flexible Spending Accounts – FSAs

Tax Advantages. Paying for out of pocket health care costs on a pre-tax basis has been legal for more than 30 years with FSAs, saving 30% or more versus after tax payments. HRAs have been around for 12 years and HSAs became a vibrant option when the 2003 law was updated in 2007.

Statistics. Studies indicate more than 80% of employers with 1,000 or more employees will offer one or more ABHP options to their employees in 2015. Projections are the take up rate for employees electing these options will exceed 50% for the first time as transparency of premium costs and increased cost shifting results to greater overall cost awareness and risk acceptance.

Why Now. Consequences of The Affordable Care Act include standardization of medical plan designs. Silver plans with $2,000 single and $4,000 family deductibles are a new “mid-point” from which richer and more basic plan designs are compared. Want Platinum? Be prepared for dramatically higher payroll contributions. Accept Bronze with lower contributions and $6,000+ to $13,000+ worst case exposure, then deposit payroll contribution savings into an ABHP.

How to select. If interested in a longer term, potentially retirement type health care savings approach, HSAs are the best option as unspent funds roll over to future years, are portable and can be invested, earning tax free interest. And yet, short term pre-tax funds instantly available to reduce out of pocket exposure may make more sense. HRAs coupled with FSAs are cash flow advantaged options where 100% of annual promised amounts are available at time of need.