Having adequate access to healthcare can impact a person’s quality of life. How a person will afford healthcare is just as important. That’s why you should understand the difference between health saving accounts, health reimbursement arrangements, and flexible spending accounts. These are the most common tax-free healthcare savings plans that allow workers to have access to healthcare and pay for it.
The differences between the three options are also crucial for companies to know and understand. Companies must present healthcare options to workers that will benefit them the most. This includes dental, medical, and vision. Some employers find that their employees benefit the most from these tax-free accounts. The ability to offer competitive benefits plans can directly impact a company’s ability to retain and hire top talent.
Helping You Learn About Health Saving Accounts
A health savings account (HSA) is a personal savings account funded through employee income contributions of up to $3,650 per year for individuals and $7,300 for families. An additional $1,000 per year can be added for workers that are 55 years of age or older. Most states do not tax these HSA contributions, however, states like California and New Jersey can add taxes.
For some people, an HSA is a preferred account as there are few concerns about employees spending the money before the year or losing it. Employees are allowed to keep the money as long as they need it.
One thing to note is that an HSA requires employees to be actively enrolled in an HDHP or a high-deductible health plan. With this type of plan, workers would pay more healthcare costs before the insurance company begins to pay its portion.
Another thing to note is that if employees make a withdrawal from an HSA for reasons unrelated to medical needs, a 20 percent penalty could incur.
An Important Overview: Health Reimbursement Arrangements
Another option for companies or employees is an HRA or health reimbursement account. With this plan, employees can pay for healthcare, dental, and vision for themselves as well as their dependents. It is a reimbursement arrangement, meaning that the employer will determine which fees they will pay back to their employees.
An HRA features tax-free contributions funded by the employer. This can benefit employers because they can claim tax deductions for the reimbursements they extend to their employees.
An important note about HRAs is whether the money stays with the employer. So, if an employee leaves the company, they lose out on the money in the account.
The Breakdown: Flexible Spending Accounts
Another common option for employers to offer to employees is a flexible spending account (FSA). Funded through untaxed employee income contributions, it allows employees to pay for healthcare, dental, and vision expenses for themselves and their dependents.
One thing to note about FSAs is that if an employee doesn’t use the funds by the end of the plan, they will lose all of the unspent amounts. That is unless the employer makes provisions to ensure workers do not forfeit their funds. Most employers will allow up to $570 of unused money to roll over into the next year.
Another thing that helps to define an FSA is that employees that leave the company will lose the money in their account unless they choose COBRA coverage. COBRA stands for Consolidated Omnibus Budget Reconciliation Act. It’s designed to give workers and families healthcare benefits once they’ve lost them through a previous company.
The Important Differences You Need To Know
All of these healthcare savings accounts are meant to help employees have the money to pay for their healthcare needs. However, understanding the differences between them can help you decide what is best for your situation.
The employer owns the account:
HSA: NO
HRA: YES
FSA: YES
The employee owns the account:
HSA: YES
HRA: NO
FSA: NO
You must include the account when filing your taxes:
HSA: YES
HRA: NO
FSA: NO
Only the employer can include money:
HSA: NO
HRA: YES
FSA: NO
You must also have a high-deductible health plan:
HSA: YES
HRA: NO
FSA: NO
The employee and employer can contribute to the fund:
HSA: YES
HRA: NO
FSA: YES
You can invest the money in the account:
HSA: YES
HRA: NO
FSA: NO
Helping You Offer the Best Employee Benefits
Ensuring that you offer the best employee benefits can make a difference in the success of your business. The Alltrust Insurance team can assist businesses of any size with selecting employee benefits to offer. When you work with us, you can be sure that you are working with experienced HR professionals.
Please contact us to learn more about our services and how we can help you.
We look forward to working with you!
