In Part 2 of this blog series, I discussed the role of the employer HRA in this healthcare plan. I also discussed the benefits to the employer from participation in this plan. As the employer does shoulder responsibility for the majority of the funding under this plan, it is appropriate that the employer be rewarded for doing so.
I will now shift focus to the 2nd of the 5 steps necessary to implement this plan.
- An employee-owned HSA funded by pre-tax payroll deduction coupled with the employer-owned HRA
Most insurance companies will tell you that it is important to structure a health plan in which the employee shares a certain measure of healthcare expense. This sharing of expense encourages the employee to be prudent in his or her healthcare utilization. I share this opinion but I do not agree with the manner in which our government, the insurers, and employers have structured their plans to provide for employee contribution. In almost all cases, they employ a one-size-fits-all approach. Companies purchasing a policy from an insurer must choose a deductible and every employee in the company must meet the same deductible before the insurer pays any claims. These same companies, however, have employees with a wide range in hourly wages. Clearly, an employee earning $75 per hour might find it reasonable to meet a $10,000 deductible while it will be utterly impossible for an employee in the same company earning $10 per hour to do so. Policies purchased through the healthcare exchanges under ObamaCare allow individuals to choose their deductible but low deductibles are accompanied by higher premiums and the only way to pay a lower premium is to choose a higher deductible. None of this really works. Low deductibles do not encourage high wage earners to be prudent utilizers of healthcare and high deductibles leave low wage earners effectively uninsured. Furthermore, though I recognize that there are ample exceptions to this, in general younger individual earn lower wages and have fewer healthcare expenses while older individuals earn higher wages and have greater healthcare expenses. It therefore defies any sense of fairness to require young, healthy individuals to contribute to any health plan a sum equal to older, better paid individuals who utilize more healthcare and can afford to pay a larger share of the cost. Therefore in designing this health plan I have abandoned the one-size-fits-all approach. In fact, I have abandoned all of the traditional premiums, deductibles, co-pays and out-of-pocket expenses and have created an approach that works for employees in all wage groups.
The only employee cost in this plan is the employee individual or family HSA. The employee pays no premiums. There are no deductibles. There are no office or prescription co-pays. There are no out-of-pocket expenses. If an employee incurs no healthcare expenses over the course of a year, that employee has been fully insured for that year at no cost to the employee as the amount contributed into that employee’s HSA remains in that employee’s HSA and rolls into the next year untaxed. If healthcare expenses are incurred, once those expenses exceed the employee’s annual individual or family HSA contribution, all further expenses are paid from the employer’s HRA fund. The minimum the employee must contribute into the HSA is stratified according to wage. This does not, however, prevent an employee from choosing to make a maximum HSA contribution. This allows an employee to tailor his or her HSA contribution to his or her individual circumstance. As an example, a 55 year-old woman whose husband’s income is sufficient to provide for their needs and has entered the workforce at $20 per hour because her children are grown and she wants to be productive is not the same as a single mother of two working for $20 per hour. The former may wish to maximize her HSA contribution. The latter would likely not be able to afford more than the minimum HSA contribution. With this in mind, the following are the minimum HSA contributions per wage level that I am proposing. Please bear in mind that these are guidelines only and will need to be tailored to meet the exact needs of each specific company that chooses to adopt this plan when, and if, this plan is able to be offered. These numbers are therefore provided for discussion only. Wages are hourly. Family consists of couple and 1 or more children. All HSA contributions are by pre-tax payroll deduction every 2 weeks.
Wage bracket. Minimum Individual HSA. Minimum Couple HSA Minimum Family HSA
$10.00-14.99. $1,000/year($38.46/check). $1,500/year($57.69/check) $2,000/year($76.92/check)
$15.00-19.99 $1,500/year($57.69/check) $2,500/year($96.15/check) $3,000/year($115.38/check)
$20.00-29.99 $2,000/year(76.92/check). $3,500/year($134.62/check) $4,000/year($153.85/check)
$30.00-39.99 $2,500/year (96.15/check). $4,500/year($173.08/check) $5,000/year($192.31/check)
$40.00-49.99 $3,000/year($115.38/check) $5,500/year($211.54/check) $6,000/year($230.77/check)
$50.00 or > $3,500/year($134.62/check). $6,500/year(250.oo/check). $6,500/year(250.00/check)
The top bracket represents current maximum allowable HSA contribution and is subject to change as contribution limits change.
This approach is not only affordable for all income groups but represents the best bargain in healthcare being offered. Individuals earning $10/hour will pay more in premium, deductible and co-pays than $1,000 per year through any insurance program offered on the ObamaCare healthcare exchanges and will have limited access to healthcare through the networks participating in those exchanges. Any employee covered under this plan will have access to healthcare equal to that of any member of Congress. Consequently, this approach should garner support from Democrats and Republicans alike as it truly provides affordable healthcare to all employees of any company that participates in this plan and does so without the need for any tax subsidies as the plan is fully paid for by the employer and its employees.
Finally, the HSA contributions belong to the employee and unused funds accumulate in the employee’s HSA account untaxed. As only the annual HSA contribution is considered before the employer’s HRA funds are accessed for healthcare expenses, accumulated funds are not drained. This allows the employee to potentially accumulate sufficient funds in his or her HSA account so that the investment revenue from that account can replace further annual HSA contribution if so desired.
However, for all of this to take place, Congress will need to not only amend Section 419 of the IRS Code to allow for untaxed accumulation of employer HRA funds. It will also need to amend the legislation governing HSAs. Currently an HSA must be coupled with a high deductible insurance plan and the employer HRA may not qualify as such a plan since there is no strictly defined deductible in the HRA. Legislation specifically allowing employee HSAs to be coupled with employer HRAs would therefore be prudent.
In the 4th and final installment in this series I will present the remaining 3 steps to implementation of this healthcare plan and show how all of the elements work together.