Going by definition, traditional insurance is when an insurer provides benefit plans coverage to a specific group of people and the plan sponsor (employer) pays monthly premiums to the insurer to provide this coverage. On the other hand, a healthcare spending account (HSA) is a government-regulated allotment of funds that an employer provides to their employees for health-related expenses. The common purpose of the two benefits distribution types is that they offer employees protection against medical expenses. But they both have very distinctive differences such as:

1. Premiums

A fully-insured benefits plan has billable monthly premiums, which are consistent month over month, unless there is a change in the number of employees. Premiums are calculated based on the expected usage of the plan and are due regardless of whether employees use the benefits plan or not.

There are no premiums for HSA. Employers pay only when their employees make an eligible claim. They pay the amount of the claim plus applicable fees and commissions. This can mean inconsistent withdrawals each month for employee benefits.

2. Renewals

Each year, the insurers’ underwriters will look at a group’s claims experience and determine if they used the plan more or less than anticipated. IIf the plan was utilized more than anticipated, there will be an increase in the rates and monthly premiums. If it was utilized less than anticipated, there will be a decrease. If the increase is too large, it can lead to plan design changes to mitigate the costs, which may or may not go over well with staff.

There is no such thing as a renewal when it comes to HSA. Once they have been reimbursed for their total allotment amount for that year, they cannot be reimbursed further. This makes it very simple to calculate the exact amount an employer will spend on employee benefits each year. However, it does mean that employees who use their entire amount early on will not have access to benefits until they reset.

3. Claims Processing and Reimbursement

In a traditional insurance plan, there can be many factors which could mean only partial or no reimbursement, such as annual deductibles, co-insurance, annual and lifetime maximums, and frequency limits.

A HSA is usually set up to provide coverage for all medical and dental expenses at 100% coverage. So, if an employee chooses to get the brand name drug, or go to a more expensive masseuse, that is their choice. There are also no limits to how much one can spend on a single item, or multiple of the same item. An employee could use the entire allotment on dental care if that was what they needed.

4. Eligible Expenses

Under a fully-insured benefits plan, insurers and plan sponsors can design a plan with very specific restrictions on mandatory drugs, prior authorizations or requirements to sign up for programs to make the insurance available. Plan sponsors can also choose to not include certain coverages, such as medical marijuana or gender affirmation coverage. 

In contrast, a HSA has fewer limitations when it comes to what is eligible as there are no frequency limits or maximums. As long as it is an eligible medical expense according to the CRA, it can be an eligible medical expense for an HCSA. For HSA, plan sponsors can also choose to limit what eligible expenses they will cover though this is not often done because HSA has an emphasis on flexibility to choose services for employees.

5. High-Cost Claims Protection

A fully-insured plan most often comes with stop-loss protection. This can provide an employee who finds themselves burdened with a very high-cost medical expense with the coverage they need when they need it, while protecting the employer.

The employee is able to use their full allotment in their HSA towards their treatment, but once they have used it all, there is no more coverage. The employer is protected in this case because there is a limit to the allocation amount. However, it does mean that the employee will have to pay out-of-pocket for the majority of their treatment expenses.

6. Age Terminations

For HSA, there is no age restriction. With employees retiring later and later, this could mean the ability to provide coverage to your more mature staff members.

A traditional insured plan can have built-in termination ages for each benefit, which may or may not be the same. Therefore, it is restrictive for long-standing employees of the plan sponsor’s business.

If you have any questions regarding HSA and traditional insurance, please contact us at Wellbytes.