You know that you would like to provide a health benefit account in order to maximize the benefits for your employees, but which type of account do you choose – a Health Savings Account, Flexible Spending Account, or Health Reimbursement Arrangement?
HSAs, FSAs and HRAs are all types of accounts that are used to pay for health care expenses. It’s important to compare the differences between these accounts in order to choose the one that will fit best, or to offer a combination of accounts to further maximize employee benefits.
Here are some advantages and things to consider for each type of account.
Health Savings Accounts
Employees tend to prefer the HSA because the account is owned by them rather than by the employer. The individual can continue to contribute to the account and access funds even after the end of employment.
Employers are often drawn to HSAs for their employees because of the portability and the opportunity for investment growth. Also, HSAs are not subject to certain rules that FSAs must adhere to, such as a maximum rollover restriction, and a mandatory 12-month coverage period.
The employer does not have to fund any portion of the account, so it tends to be a good cost-saving option.
Individuals may contribute directly to an HSA and deduct the amount on their income tax return or have their contributions payroll deducted pretax.
Flexible Spending Accounts
Employers that offer a traditional health care plan often prefer FSAs because HSAs are not an option with traditional insurance since a High Deductible Health Plan is required to be eligible. Rollover: Currently employers have the option to allow rollover, which allows employees to rollover up to $500 of unused funds at the end of the year into the next plan year.
The employer can benefit because they get to keep unspent money at the end of the year. If the employer allows for the rollover, they would be able to keep any funds greater than the $500 allowed rollover amount for each account.
Contributions are deductible by the employer and not income to the employee. The contribution is not subject to FICA/FUTA.
Health Reimbursement Arrangements
Larger employers that have more complex benefit packages tend to favor HRAs for their flexibility in plan design. HRAs are also a good option for employers that self-insure.
HRAs can be offered in conjunction with a health FSA and HSAs to a limited extent.
Contributions are deductible by the employer and not income to the employee. The contribution is an employee benefit not subject to FICA/FUTA.
There are options where you can offer more than one of these accounts, but there are specific set up rules to consider depending on which accounts you would like to offer together. Please contact Fyte HCM for more information on these accounts and plan design options.