Health accounts are another way employers, and employees, can reduce health care costs. In some cases, these accounts combine with self-funded plans to create what is called a “partially self-funded health plan.” One example is combining the benefits of a self-funded plan with a Health Reimbursement Account (HRA). By raising the deductible on the group health insurance plan, an employer may self-insure the difference with an integrated HRA or Health Savings Account (HSA).
The most common health accounts are:
Health Savings Account (HSA)
A health savings account (HSA) is a tax-advantaged medical savings account available to those who are enrolled in a high-deductible health plan (HDHP). Contributions to the HSA are 100% tax deductible (up to the legal limit) and withdrawals to pay qualified medical expenses are never taxed. In addition, earnings to an HSA from interest and investments are tax-free. Unlike a Flexible Spending Account (FSA), HSA balances roll over year after year, and continue to grow tax deferred.
Flexible Spending Accounts (FSA)
Flexible spending accounts allow employees to contribute a portion of their paycheck, pre-tax, to the account in order to pay for qualified medical expenses. FSAs can be used to cover deductibles, co-payments, vision and dental, or for qualified dependent care. It’s important to estimate your FSA contributions carefully, as unspent funds are forfeited at the end of the year.
Health Reimbursement Account (HRA)
Also know as a Health Reimbursement Arrangement, an HRA is a tax-advantaged benefit that allows both employees and employers to save on the cost of health care. HRAs allow employers to set aside pre-tax dollars in order to reimburse employees, and their dependents, for medical expenses. HRAs are funded solely by the employer, therefore any unused funds stay with the employer and benefits do not follow an employee to another job.