Group Benefits: Health Savings Accounts (HSA), Health Reimbursement Accounts (HRA) Flexible Savings Accounts (FSA, Section 125 Plan)
Due to the high cost of health care today and double digit health insurance premium increases, the following types of plans have gained in popularity with employers seeking to control cost:
Health Savings Accounts (HSA)- An HSA is a tax-exempt account, that is set up using any approved custodian or trustee, such as a bank or insurance company, to reimburse eligible medical expenses.
Funds may be deposited into these accounts by anyone, participants or employers.
An HSA can only be accompanied by the purchase of a qualified high deductible health plan.
Minimum deductibles and maximums are subject to IRS regulation changes. With 2010 minimum annual deductibles are $1,200/individual and $2,400/family and maximum annual out of pockets $5,950/individual and $11,900/family) .Funds in the HSA provide tax-exempt dollars to be used for legitimate medical expenses until your deductible is satisfied, after which the insurance plan provides insurance benefits.
Funds deposited into an HSA belong to the account holder or employee and may be taken with them upon termination of employment.
Health Reimbursement Accounts (HRA)- Self Employed, Partners and 2% or more owners of an S-Corporation are not eligible to participate in an HRA. They may, however, establish an HRA plan for their employees and an HSA plan for themselves.
HRA plans can only be funded by the employer and there is no limit to the amount of the contribution.
They may be used in conjunction with an employer sponsored health plan or stand alone without a health plan.However, many employers couple HRA plans with a High Deductible Health Plan (HDHP) as a means of controlling premium expenses.
HRA funds may be used to reimburse forallowable medical/dental expenses. See IRS Publication 502, Medical and Dental Expenses.
Flexible Spending Arrangement (FSA) - These plans allow funds to be set aside to reimburse employees for eligible medical expenses not otherwise reimbursed by a medical or dental insurance plan. FSAs are sponsored by an employer but usually funded through voluntary salary reduction agreements with employees.
Self Employed, Partners and 2% owners of an S-Corporation are not eligible to participate.
Salary reductions are not subject to employment or Federal income taxes.
Employers are not required to make FICA matches on employee contributions to FSAs. The employer may also contribute to the FSA on behalf of the employee if they so choose.
Employees can withdraw funds from the account to pay for qualified medical expenses even if they have not yet fully funded their account. Employers, therefore, should set aside funds each year to cover any such unexpected high claims. Typically, employers prefer to hire an outside administrator of their FSA plan but the cost of administration is somewhat offset by the tax savings already mentioned. FSAs are covered under IRS Reg Sect 125, where other elements can also be found, to include dependent care plans.
Employers can design their plan strictly for health or to also include dependent care expenses. FSAs are "use it or lose it" accounts, so good planning is important.
Note: Often in common speak people refer to the FSA as Flexible Savings Accounts though the actual acronym stands for Flexible Spending Arrangement.