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SPOTLIGHT ON EMPLOYEE BENEFITS (October 2009)
Our dedication to you is driven by a motivation to always do what's in your best interest. Part of that includes providing you with information so you have more control of your financial future. We've chosen several topics below that we feel will be valuable to you and your associates. Unless you've been vacationing on some remote deserted island, you've undoubtedly been alerted to the debate surrounding healthcare reform. Part of that debate involves Consumer Driven Health Plans (CDHPs). CDHPs are high deductible health plans and are usually paired with some type of individually directed health account, such as a Flexible Spending Account (FSA), Health Reimursement Arrangement (HRA) or Health Savings Account (HSA).
REDW Benefits can help employers navigate the tumultuous waters of rising healthcare premiums by offering complete administration of HSAs, HRAs, and FSAs. REDW Benefits' website has recently been updated to include a Resource Center which provides Plan Sponsors and Plan Participants with a convenient point of reference for seeking answers to questions about employee health account options.
What is a Flexible Spending Account (FSA)?
Flexible Spending Accounts (FSAs) are also called Section 125 plans after the section of tax code that governs their use. FSAs earn their nickname from the flexibility they give participants in choosing from a menu of benefits. With an FSA, the employee authorizes the employer to deduct a fixed amount from their before-tax income. FSA contributions are made to a reimbursement account that is used to pay for qualified expenses that are incurred during the year. Qualified expenses include health care, dependent care and group insurance premiums that the employer does not reimburse. Contributions to an FSA are exempt from FICA, Medicare, federal and state income taxes. Also, employers do not have to pay their half of FICA and Medicare taxes or federal and state unemployment insurance on contributions to an FSA plan. Therefore, employers also benefit from the use of an FSA plan.
What is a Health Savings Account (HSA)?
A Health Savings Account (HSA) is a special savings account that works with a qualified high deductible health plan (HDHP). If an individual is enrolled in a qualifying high deductible health plan, an HSA allows them to set aside pre-tax money for healthcare costs.
As long as the individual participates in a qualified HDHP, they can contribute to an HSA by making pre-tax paycheck deductions or with personal tax-deductible payments. When money is paid out of the HSA, it's tax-free as long as it is used for eligible healthcare expenses.
An HSA account is owned by the individual, so it is portable. If the individual retires or leaves the employer, the account goes with them. The account owner can continue to use the money to pay for healthcare expenses in the future-even during retirement-on a pre-tax basis. If funds aren't used in one year, they carryover to the next year.
What is a Health Reimbursement Arrangement (HRA)?
A Health Reimbursement Arrangement (HRA) is a way for employers to provide tax-free health benefits to their employees, under Sections 105 and 106 of the Internal Revenue Code. HRA monies may be used to reimburse medical expenses, as defined in Section 213 of the Internal Revenue Code. The employer (or plan sponsor) determines what medical expenses are eligible for reimbursement. Employers may provide debit cards which allow plan participants to pay for the benefits at the time of service using employer paid HRA benefits.
If the HRA is linked to a group health plan with a high deductible, the HRA often has specific limitations, including reimbursement of the deductible, co-pays and co-insurance.
Unlike FSAs, unused amounts may carry over from year-to-year. Employers may, however, choose to terminate unused benefits at the end of the plan year.
For more detailed information, please see our Resource Center under "Flexible Spending Accounts and Debit Cards". Or, feel free to give us a call to find out how you might be able to save on your health care costs.
Carol Mayo Cochran, Principal
505-998-3208 |
Lisa Wilcox, Principal
505-998-3296 |
Wendy Coleman, Benefits Supervisor
505-998-3430 |