Originally called “Medical Savings Accounts,” Health Savings Accounts (HSA) are the hot topic in health insurance. A consumer driven healthcare product, an HSA offers a high deductible health plan combined with a tax-advantaged savings account. With higher out of pocket costs, employees have more direct responsibility for healthcare expenses. Employers save money on premiums and can elect to contribute this savings to their employee’s HSA. Employees can contribute up to a certain percentage of their deductible into their HSA account. Unused money in the tax-advantaged savings account can be rolled over, accumulating over time, or employees can withdraw money from their accounts as needed, for qualified medical expenses.
Health Savings Accounts can work alongside other qualified “cafeteria” plans such as Health Reimbursement Arrangements (HRA) or Flexible Spending Accounts (FSA). When feasible, this creative option provides employers and employees a mechanism to finance higher out of pocket expenses by taking full advantage of IRS incentives.
What is a Health Reimbursement Arrangement/Account?
Health Reimbursement Arrangements (HRAs) are the most versatile employer-designed benefit where the employer reimburses employees for out of pocket medical, dental and/or vision expenses. The employer can decide to reimburse only one expense (e.g. prescriptions or deductible expenses), or any expense that insurance does not cover (e.g. medical, dental and vision).
The employer decides who will receive reimbursement. He may choose to reimburse only employees on the group medical plan, all employees, or all employees and their dependents. This plan must be non-discriminatory so reimbursement must be the same for all classes of employees.
An HRA can be funded monthly, annually, or only when an employee presents a claim for reimbursement. The HRA can be an annual "promise to pay" an expense (such as deductible expenses) with no rollover of unused funds or it can be a funded account where unused funds rollover and accumulate every year to protect the employee and/or family from a catastrophic medical event in the future. A funded HRA typically does not allow unused funds to be portable when an employee terminates but if the employer wants the funds to go with the employee that is also allowable.
To learn more about HRA’s and what they could do for
your company, please contact one of our licensed, professional
agents today.
What is a Flexible Spending Account?
Sometimes referred to as “cafeteria plan” or a Section 125 plan- an FSA allows employees to set aside a certain amount of their paycheck into an account before paying income taxes, thus lowering taxable income (also lowers FICA matching by the employer). During the year employees have access to this account to reimburse themselves for IRS qualified medical expenses not typically covered by a health plan.
When feasible, this is a great benefit that employers can offer, allowing employees to use tax-free dollars for known expenses, proactively planning the year, realizing an increase in spending power, as well as substantial tax savings.
Once deposited (even if employers choose to contribute a certain amount to the FSA), FSA money belongs to the employee. Should an employee file a claim against FSA money and then separate employment, the claim must be paid, regardless of whether or not the employee has fully funded the account to cover the claim. However, FSA money is “use it or lose it.” Funds must be used before a narrow window following the close of the plan year or the money goes back to the employer.
Common reimbursable expenses can include:
- Deductibles, copays, and coinsurance
- Prescription drug copays
- Expenses excluded from the health plan*
- Dental services and orthodontia
- Weight loss programs (associated with a specific disease)
- Chiropractic services
- Mental health care copays or out of pocket expenses
- Smoking cessation programs
- Medically necessary over-the-counter medications (such as antacids, aspirin associated with a specific disease)
- Adult and childcare services
- Much more
To learn more about Flexible Spending Accounts, please contact one of our licensed, professional agents today
* Refer to IRS Publication 213(d) for a full listing of all qualified expenses
