By Terri Mangrum, guest blogger
Gone are the days when a simple health insurance policy was the only thing an employer had to consider when offering health benefits to employees. 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 actual health insurance policy is only one small piece of the 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. Enter the various acronyms for other types of 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.
The FSA (Flexible Spending Account) 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.
The HRA (Health Reimbursement Arrangement) 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.
The HSA (Health Savings Account) is available only when paired with a qualifying High Deductible Health Plan (HDHP). The HSA is an employee’s individual bank account, managed by the employee. Contributions can be made—up to the allowed federal maximum amount—to the account by the employee and employer. These contributions are tax-deductible, and account balances can build up over time. Additionally, investment options can be made available by the HSA banking institution. The HSA account belongs to the employee and goes with the employee upon termination.
It is important to work with a benefits or broker professional 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.
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!