What’s The Best Health Care Account for Your Employees?

Help your employees achieve more control over their health care decisions and expenses by providing them with a savings account for medical expenses.

One of the most popular ways to save for health expenses is with a Health Savings Account (HSA). The Medicare Prescription Drug, Improvement and Modernization Act created HSAs in 2003 as a way for employees in qualified High Deductible Health Plans (HDHP) to save money on a tax-free basis to pay for qualified health care expenses. With money set aside for illnesses or injuries, employees have the freedom to shop for the best option for them and their families. Other popular types of savings plans include the Flexible Spending Account (FSA) and Health Reimbursement Arrangement (HRA). These accounts are similar, but differ according to how much can be saved annually, who can contribute to the plan and how the funds can be used.

An HSA must be paired with a qualified HDHP, which covers serious illnesses or injuries and some preventive care. Since the deductible must be met before any plan benefits are paid, employees can use the money in their HSA to pay for qualified expenses, including medical and dental care, vision, prescription and some over-the-counter expenses; COBRA; retirement medical insurance premiums; LTC premiums or expenses. Annual contribution limits for 2018 are $3,450 for individuals and $6,850 for families.

An employer — not just the employee — can contribute to the employee’s account.

Employees can take the account with them to their next job if they leave your company.If there is money left in the HSA at the end of the year, 100 percent rolls over to the next year.Employees get triple tax savings.

Funds from the account can be used to pay Medicare premiums and qualified long-term care premiums.Employer contributions are not taxable.

It can be difficult for employees to raise enough money to meet a deductible, in addition to saving enough money to pay for health related expenses.

Employees pay a penalty if they withdraw funds for anything other than health care expenses.

An HDHP/HSA is not always a good choice for those who have significant health expenses.Some HSAs charge a monthly maintenance fee or a per transaction fee.

The Revenue Act of 1978 created the FSA program. An FSA is similar to an HSA because it allows employees to save money tax free for qualified medical expenses, including medical, dental, vision, prescription and some over-the-counter costs. Employees also can use FSA funds to pay deductibles, and copayments, but not insurance premiums. FSAs don’t have to be tied to a health plan, but account funds must be used during the plan year. You can offer a grace period of up to two and a half months; or you can let employees carry over as much as $500 each year — but not both. Any money not used by the end of the stated period is lost. 2018 contribution limits are $2,650 for healthcare expenses.

An employer, in addition to the employee, can add money to the account.Allows employees to set aside pre-tax money annually.Employer contributions are not taxable.100-percent of the employee’s annual election is available to them on the first day of the FSA plan year.

Employees cannot take the account when they move to another company.Only $500 can be rolled over to the next year (at the employer’s discretion).

A Treasury Department Revenue Ruling in 2002 created the Health Reimbursement Account. HRAs are self-funded, tax-favored programs that do not have to be, but usually are paired with a health plan or HDHP. HRAs must be funded solely by the employer. The employee cannot fund the plan through a salary deduction. Employers can contribute any amount in a lump sum or per pay period. Employers can deduct the cost of both insurance plans and HRAs as a business expense. Employees can use HRA funds to pay for medical, dental and vision care; prescriptions; and some over-the-counter expenses, as defined by their plan.

An HRA is funded by the employer and therefore is not portable, although it is allowed to cover former employees. When an individual’s job status changes, the HRA funds stay with the employer. Employers may set up and fund a retirement HRA, and the HRA is subject to COBRA regulations.

One hundred percent of any money left in the HRA at the end of the year rolls over to the next year if you allow it.Employer contributions are not taxable.There are no contribution limits.

Small employers, under 50 full-time employees, can take advantage of a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) to allow contributions to reimburse individual health insurance premiums or healthcare expenses but have annual contribution limits.

Employees cannot contribute money to the account and must rely on the employer contribution.

Please contact us to discuss implementing any of these arrangements for your plan.