In the modern-day workplace, group health benefits are a complex puzzle of multiple pieces, and HR managers are challenged—more than ever before—to produce suitable and affordable benefits plans for company employees. The health insurance policy is only one small piece of the employee benefits puzzle.

Due to skyrocketing costs of health coverage, employers who wish to offer generous health plans must now piece together various types of plans to minimize costs, reduce monthly premiums, and help employees cover high, out-of-pocket expenses. These types of plans bring about the various acronyms for health plans that make up the benefits puzzle. 

So, what do these acronyms mean, and in what ways are they helpful? Here’s a look at three health benefits plans that help subsidize out-of-pocket costs by providing tax relief and funds for expenses. 

What is a FSA?

The Flexible Spending Account (FSA) allows employees to make tax-free contributions to a fund, which will reimburse their qualifying expenses. These FSA contributions made via payroll deduction are completely excluded from income. This means the employee does not pay federal, FICA, or Medicare taxes on their contribution dollars. As a result, the employer’s FICA and Medicare match is reduced.

What is a HRA?

The Health Reimbursement Arrangement (HRA) is completely funded by the employer who makes available to the employee a specified dollar amount for the reimbursement of qualifying expenses. The employer funds the HRA only when there is a claim, and reimbursements are not considered income to the employee. Unclaimed funds remain with the employer; therefore, the healthier its employees, the less HRA funds spent.

What is a HSA?

Investing in your employer’s 401(k) plan is always a must, however, your employer may also offer another savings tool that is often overlooked when planning for retirement. The HSA (Health Savings Account) can be a vital component in reaching retirement goals. The HSA is a medical savings account that is paired with a High-Deductible Health Insurance Plan (HDHP) and managed by the employee. Contributions to an HSA may be made by the employee and their employer—up to the allowed federal maximum amount— and the contributions are tax-free.

These contributions are tax-deductible, and account balances can build up over time. Investment options can be made available by the HSA banking institution. Funds may be used for payment of medical care incurred by the account holder and dependents. HSA funds can be invested in stocks, bonds, and other investment funds to encourage further fund growth, and earnings are also tax-free. Additionally, unspent funds in an HSA rollover and grow from year to year. The HSA belongs to the employee, and if the employee’s employment ends, the HSA goes with them.

It is important to work with benefits or broker professionals when coordinating these plans with your health insurance choices. Although these plans help offset higher deductibles and out-of-pocket costs, provide significant tax savings, and aid employees in planning for their medical services, there are several considerations and regulations to follow. The pairing and coordination of these plans can be tricky, but they are a key piece of the puzzle in saving both the employer and employee healthcare and payroll tax dollars.

The HSA remains with the employee upon retirement, and, at age 65, the funds in the account may also be spent on non-medical expenses; however, the funds will be taxed as income for those non-medical expenses, but never for qualified medical expenses. HSA funds can also be used for the payment of Medicare and long-term care premiums.

A well-funded, tax-free HSA account can eliminate the need to use taxable 401(k) savings for medical care. This can be welcomed relief to many retirees, as most wish to use their retirement savings for living and enjoyment. Contributing to an available HSA over the long term should be given as much consideration as contributing to a 401(k) plan.

What Services You Can Utilize Under HSA Funds

The average American spends $5,000 out-of-pocket every year for healthcare costs, according to the Bureau of Labor Statistics. Below, we list eight categories of HSA-approved services and items that can help reduce employee stress during these uncertain times, in an effort to optimize your HSA dollars. We also recommend visiting HealthEquity for a full list of qualified medical expenses set by the IRS.

  1. Telehealth (mental health and primary care) – Depending on your mental health provider’s network, services aren’t always covered under the health plans. However, employees can use their HSA dollars to cover them. Additionally, telehealth makes it easy to access care during the pandemic and when employees need it.
  2. Alternative therapies – HSA dollars can be used for chiropractic visits, acupuncture, massage therapy and even yoga — with a doctor’s note explaining that the services are medically necessary. Be sure to keep the note in the event your HSA is audited, and you are asked to prove that a medical professional made the recommendation.
  3. Sleep aids – Many people aren’t sleeping well right now because they’re stressed about the pandemic. You can buy melatonin, nasal strips, a dental guard (for teeth grinding), and other sleep aids with your HSA dollars.
  4. Drugs and medicine – Use your HSA funds for over-the-counter medicines such as fever-reducing medications, allergy medicine, antacids, and more. Immunizations and vaccines can also be covered by HSA dollars.
  5. Personal care – Many people are unaware that you can use your HSA to purchase your everyday personal care items. A few examples are Chapstick, sunscreen, menstrual care products (tampons, pads, liners, cups, sponges and similar items), menstrual pain relievers, Viagra, condoms, pregnancy test kits, and blood pressure monitoring devices.
  6. Baby expenses – Certain items for your baby can be covered by your HSA. These items include diaper rash ointments and creams, breast pumps, obstetrical expenses, lactation consultants, midwife services, toothache and teething pain relievers, thermometers, etc.
  7. Eye care – Items covered by your HSA for eye care can include laser eye surgery (Lasik), eye examinations, eyeglasses, optometrist visits, and contact lenses (including materials and equipment).
  8. COBRA expenses – For those people who are losing their jobs due to the pandemic and are receiving healthcare benefits from COBRA, they can use their HSA dollars to help with these payments.

LBMC Employment Partners can help you navigate the complexity of health benefits plan design, find the right plan coverage, and provide FSA and HRA administration. Contact us today to learn more!