Following are employee benefit plan options designed to save both employers and employees money on healthcare and premiums. The plans are similar in some ways, but also vary, each having unique advantages and savings opportunities. The interface feature of our all-in-one online benefits management system makes it extremely easy to add and manage these programs to your benefit offering, including administration and compliance.
Health Savings Account (HSA)
A Health Savings Account combines a high deductible, lower premium group health insurance plan (HDHP) with an employee owned, interest earning savings account. Both employer and employee can contribute, with pre-taxed dollars, to the savings account. This effectively reduces the employee’s taxable income as well. Tax-free withdrawals are used directly by employee to help fund the deductible and other qualified medical expenses (including prescription, dental, and vision related healthcare). Any unused contributions can roll-over to the next year, and the HSA is portable and stays with the individual, even when that person changes employers. For all qualified medical expenses see See IRS Publication 502.
Health Reimbursement Arrangement (HRA)
A Health Reimbursement Arrangement pairs a high deductible, low premium health insurance plan (HDHP) with a tax-favored savings account to cover the high deductible. The HRA is funded by the employer and money is distributed only when a claim is incurred, typically for co-pays and other qualified expenses submitted by the employee, prior to the deductible being met. HRA contributions are not considered income to the individual. This type of arrangement helps both the individual and the business owner. The individual gets financial assistance paying medical bills and the employer only pays money when a claim is incurred, plus gets a business deduction.
Flexible Savings Accounts (FSA) (Section 125 Plan)
A Flexible Spending Account is a tax-favored savings account funded solely by the employee through regular pre-tax payroll deductions. The funds can be withdrawn, tax-free, to pay for eligible medical, dental, vision, prescription and dependent daycare expenses. Employees elect how much they want withdrawn from each pay period. By participating in a FSA, an employee always has cash to pay for these expenses, and as an added benefit, their taxable income is reduced which also increases the percentage of pay they take home. One disadvantage of using an FSA is that funds not used by the end of the plan year are lost to the employee, known as the “use it or lost it’ rule. In 2021, the maximum allowed per employee in a medical flexible spending account is $2750 per plan year.
