The Peru Gazette

By Donald McBrayer

Peru’s Town Board is currently shopping around for health insurance for Town Employees. This daunting task is made more complex by the wide variety of options available. Town employees should be actively engaged in this process because they will be directly affected by any decision that is made. There is a Special Meeting set for Thursday December 3rd at 7:00 P.M. to continue exploring options, and voting on this issue will happen before the end of the calendar year. One of the main issues being discussed is offering high deductible policies and supplementing them with HRAs or HSAs. These two options are similar, but also quite different. It is important to understand the difference when considering them.

HRA (Health Reimbursement Arrangement) is set up by the employer and distributed to the employee to help offset the cost of a medical expenses not covered by insurance. This is not a retirement account, and should not be confused as such. HRAs are initiated by the employer and serviced by a third-party administrator. HRA balances can be rolled over from year to year like a savings account allowing the fund to grow. There is a catch however, it is the employer and not the employee that decides if the funds are rolled from year to year and how much rolls over. Because an HRA must be funded solely by an employer, and contributions cannot be paid through salary reductions, the employer has total control over fund contribution and distribution.
The advantages for the Town would include tax-deductible reimbursement claims and knowing their maximum expense related to their health care benefit. The employee would benefit because contributions are excluded from their gross income, reimbursements are tax-free, and a high deductible plan is not mandated to be included in a HRA program. And, because the Employer puts up the initial fund, HRA initiation is not dependant on the employee’s ability to set aside start-up funds.
There are a couple pitfalls to consider as well. HRAs belong to the employer. Employees lose access to an HRA as soon as he/she is no longer employed by the employer. HRAs are also beginning to be dropped by some carriers, and may soon no longer be available as an option.
So in short, a HRA would be a town controlled, and managed, pool of money that would be set aside by the town to assist eligible town employees with non-covered medical expenses.

HSA (Health Savings Account) can be set up by any policyholder of an HSA-eligible high-deductible health insurance plan, or by their employer. Contributions may be made on a pre-tax basis through an employer or a post-tax basis by the employee, who could then use the contribution to decrease gross taxable income on their following year’s income taxes. Regardless of the method or tax savings associated with the HSA, the deposits may only be made for persons covered under an HSA-eligible high-deductible plan. Contribution limits for 2009 are $5,950 for Family, $3,000 for individual, and $1,000 for catch-up contributions. All deposits to an HSA belong to the employee, regardless of the source of the deposit. HSA grow over time as the funds roll over each year. If the employee loses eligibility to continue deposits into the HSA, any existing funds remain the property of the employee.
The advantages to the town would be lower premium costs due to more employees getting into high-deductible insurance programs. The advantage to the employee would be control and ownership of the HSA to use as he/she sees fit.
The disadvantage involves self-discipline. The HSA owner needs to discipline him/herself to allow the fund to grow. Building an HSA account takes time, and may be difficult for low-income employees. Discipline to not access the account for purposes other than large medical, non-insured costs is another issue. Because the employee owns the HSA, he/she runs the potential risk of accessing it at whim, them finding themselves short of funds when faced with a large, unexpected, non-insured medical expense
So in short, a HSA is a pool of money owned and controlled by the employee, building over time to offset the costs of non-covered medical expenses.

The HSA/HRA debate is only one aspect of the overall Health Insurance decision the Town Board is facing. It is in every town employee’s best interest to become engaged in this issue. If you have any questions or concerns seek out Department Manager, or the Town Board. Again, there is a Special Meeting set for Thursday December 3rd at 7:00 P.M. to discuss this important issue.

Here are some online resources to further explore HRAs and HSAs:
http://www.charlotteobserver.com/408/story/997257.html
http://www.pr.com/press-release/55611
http://www.baseonline.com/Resources/Group/HRAvsHSA_Group.pdf
http://denver.bizjournals.com/denver/stories/2004/12/13/focus5.html