Health savings accounts can be great for you and your employees. These tax advantaged accounts can not only help you and your employees set aside money for medical expenses, but they allow you to pay for your medical expenses with pre-tax dollars. HSA’s, HRA’s, and FSA’s can be a great benefit to your company, but as with any benefit, your goal should always be to find the plan that fits your company the best. The hard part is, only you can make that decision.
HSA’s or Health Savings Accounts are only eligible to employees or individuals who have a HDHP, or a High Deductible Health Plan. According to HealthCare.gov, the max amount an individual can contribute in 2023 is $3,850. A family can contribute $7,750. Many people use the HSA as a way to save for the expenses to cover their medical services that aren’t covered by their plan until they reach their deductible or max out of pocket. HSA’s can either be funded by an employee or an individual. What I like the most about HSA’s is that they roll over each year if you don’t use the money that you saved. If monies are used for anything except for medical expenses, there is a 20% tax penalty on top of what will be added to your ordinary income. Once you attain age 65, you are able to access the funds for reasons that aren’t medical and you won’t receive the 20% penalty, but it will be treated as ordinary income.
HRA’s or Health Reimbursement Accounts are an alternative approach to offering traditional health insurance. This account-based health plan lets employers give predefined reimbursements that are nontaxable, to cover out of pocket medical costs. You must have at least one employee who is not a spouse wo offer an HRA. Another benefit is that there are no minimum contribution requirements, but the maximum for 2023 is $1,800. They can be offered to every employee, or you can do carve outs. There are certain restrictions to offer and HRA and they can possibly impact an employee or dependents eligibility for a premium tax credit. You can learn more at HealthCare.Gov. HRA funds may or may not be rolled over, it’s dependent on the employer.
FSA’s or Flexible Spending Accounts are a special trust that money is put into to cover certain medical costs. Employers are not required to make contributions to your FSA, but they can. The maximum amount is $3,050 per employee. Once a claim is submitted along with proof of the medical service, and a statement showing the service not being covered, you should be credited back for your out-of-pocket costs. If you already have a plan, they’re all different, speak to your plan administrator to find out exactly how yours works. It’s not a requirement, but your plan can either have a grace period of 2 and ½ years to use the money in the FSA or be allowed to carry over $650 each year, but not both.
Whether it’s an HSA, HRA, or an FSA and it fits your business and plans, you and your employees should be happy. The trick is always finding the right plan.