ClarifyingHealth - Health Benefits Blog

Federal regulations prohibit businesses from paying directly for employee's individual health insurance premiums, outside of an HRA (Health Reimbursement Arrangement), or other IRS/HIPAA/ERISA-qualified tax-free vehicle (e.g. Section 125).

Prior to World War II, many employees purchased their own individual or family health insurance policies, sometime called “personal” health insurance policies, just like they do today with homeowners, auto, and life insurance. As mentioned earlier, in 1945, to get around wartime wage and price controls, employers were allowed to give employees unlimited health benefits without having to report it as income.

Originally, employers thought providing tax-free health benefits and paying all incidental medical expenses was a great way to compensate employees, with federal, state and city governments paying about half the bill through hidden tax subsidies. This subsidy was even larger for decision-making executives in high income tax brackets because the marginal federal personal income tax rate for people earning over $135,000/year ranged between 91% and 70% from 1959-1981. By the mid-1970s, employer-sponsored health benefits with virtually no deductibles were almost universal among major employers.

In the late 1960s, as inflation and other factors increased the cost of employer-sponsored health benefits, employers began instituting annual deductibles and coinsurance on their health benefits plans, and/or excluding coverage for certain medical items that were legally allowed to be covered by IRS regulations (e.g. vision, dental, alternative medicine). Excluding these medical expenses effectively almost doubled the employee cost for these items on an after-tax basis.

The History of Health Savings Accounts, or HSAs, goes back to the 1980s and 1990s when Congress began discussing Medical Savings Accounts (MSAs)

In the 1980s and 1990s, Congress began discussing Medical Savings Accounts (MSAs) where any consumer could (1) pay for all medical expenses with tax-deductible dollars and (2) spend or save unlimited tax-advantaged amounts for current or future medical expenses.

New business methods and technology now allow employers to enroll employees in a single HRA software platform from which employees access their:

Comparison charts provide an excellent way of summarizing complex information.  As a follow-up to yesterday's HRA case studies, check out this HRA, HSA, FSA, PRA comparison chart. It's a good summary of the key differences between the four primary types of health care reimbursement accounts and arrangements.

If you've ever tried to learn a new concept, you probably appreciate that "knowing" is different from "understanding". When you have an opportunity to apply your knowledge, the lesson typically becomes much more real.  Case studies provide an excellent way of practicing and applying new concepts. As such, we've provided below four case studies from some of Zane Benefits' earliest clients. 

At the beginning of the 20th century, when most employees worked at large manufacturing plants, larger employers provided self-funded, self-managed, onsite medical care in the form of a company doctor. This developed into today’s system in which employers pay for employee medical expenses through self-insured or fully-insured health benefits plans. These came to be known as defined benefit healthcare plans in which employees receive a defined benefit, typically unlimited healthcare, at uncertain cost to the employer.  For more information on HRAs, see What is an HRA?.

Massachusetts is aiming to cut $160 billion in health care-related spending over the next 15 years to control rising medical costs that were not addressed through the state's 2006 health care reform.