Consumer-Directed Health Care

Health Care Reform Help is Here, Get Started

Employers have many options to provide quality health coverage while still managing health care costs. We offer our Paychex Benefit Account, a consolidated consumer-directed health solution for businesses of any size looking to continue offering health insurance.

Compare and select one or a combination of the following plans:

 Health Savings Account (HSA) Health Reimbursement Arrangement (HRA)Flexible Spending Account (FSA)

Definition

A tax-advantaged savings account that is used in combination with a high deductible health plan (HDHP). Consumers use the HSA funds to cover qualified medical expenses.

An employer-funded plan that may be used to reimburse employees for qualified medical expenses.

An employer-established, tax-advantaged account funded by the employee and/or the employer to pay for qualified medical expenses with pre-tax dollars.

Who “owns” account?

Individual\Employee

Employer

Employer

Who can contribute to the account?

Individual\Employee, Employer

Employer only

Employee and Employer

Where are funds held?

In HSA Deposit Account – Qualified Financial Institution and Mutual Funds

By employer

By employer

Pre-tax payroll deductions allowed?

Yes

No

Yes

Annual maximum limit on contributions
[www.irs.gov]

Yes1

No2

Yes3

Entire election available for reimbursement at start of plan year

No

Depends on plan design

Yes

What distributions are allowed?

Debit Card4

Request for distribution or bill-pay

Online/Paper

Debit Card

“Claim” – Request for reimbursement or bill pay

Online/Mobile/Paper

Debit Card

“Claim” – Request for reimbursement or bill pay

Online/Mobile/Paper

Substantiation

Not required for payment5

Required

Required

Must have Health Plan?

Yes. Qualified HDHP whether through employer or not

Beginning in 2014, employees must be enrolled in employer-sponsored group coverage unless the HRA is limited to vision or dental expenses.6

No, but employer must offer qualified health coverage.

Can have other (non-HDHP) Health Plan?

No, except for certain permissible coverage such as dental or other limited purpose plan(s).7

Yes

Yes

Tax Benefit

Contributions are tax free, interest and investment gains are tax free, and withdrawals are tax free when used for qualified medical expenses.

Employer deposits and claim payments are tax-free.

Employer/payroll deposits and claim payments are tax-free.

Interest earning?

Interest can be accrued on a tax-deferred basis in qualified HSAs. And if the account balance reaches the minimum balance requirement, the funds can be invested in mutual funds and those gains are also tax-free.

No

No

Access to funds after termination

Individual account not tied to employment status.

Employee must be offered COBRA.

Employees must be offered COBRA (usually until the end of the year).

Employees carry over unused amounts

Yes. The individual owns the account and any contributions made to it, regardless of the source or timing of the contribution.

Employer discretion

Limited to up to $500 carryover to the immediately following plan year OR a grace period.8

What is the tax treatment for employer contributions?

Employer contributions may qualify as a deductible business expense and are exempt from FICA and other employment taxes.

Employer contributions may qualify as a deductible business expense and are exempt from FICA and other employment taxes.

Employer contributions may qualify as a deductible business expense and are exempt from FICA and other employment taxes.

What is the tax treatment for employee contributions?

Employee contributions may be made through a cafeteria plan and are tax free. If made outside of a cafeteria plan, they are treated as an “above the line” deduction.

Employees are not permitted to contribute to an HRA.

Employee contributions to an FSA are made on a pre-tax basis, and therefore reduce annual taxable income.

 

What expenses qualify for distribution?

Medical expenses under §213(d) of the Internal Revenue Code (over the counter drugs are not an eligible medical expense unless prescribed by a health care provider). HSAs may not be used to pay insurance premiums except for (1) COBRA, (2) qualified long-term care insurance (3) health care coverage while the individual is receiving unemployment compensation; and (4) premiums for Medicare Part A or B, Medicare HMO, and (5) after age 65, the employee’s share of employer-sponsored retiree health care.

Employers configure the account to reimburse all or a subset of any otherwise unreimbursed expenses that are qualified under §213(d) of IRC (over the counter drugs are not an eligible medical expense unless prescribed by a health care provider). This can include health insurance premiums (other than premiums that are paid through an employer’s cafeteria plan) and long-term care insurance premiums. However, long-term care services are not reimbursable.

Any otherwise unreimbursed medical expenses that are defined under §213(d) of IRC (over the counter drugs are not an eligible medical expense unless prescribed by a health care provider). Health insurance premiums and long-term care services are not reimbursable.

1IRS-imposed HSA limits for 2015: The 2015 annual HSA contribution limit for individuals with self-only HDHP coverage is $3,350 (a $50 increase from 2014), and the limit for individuals with family HDHP coverage is $6,650 (a $100 increase from 2014). Annual catch-up contributions for those 55 and over: $1,000.
2IRS does not impose HRA limits, limits set by employer.
3In 2015, employee contributions for an FSA cannot exceed $2,550 per IRS Rules.  Employer contributions are not subject to limits, but may not discriminate in favor of highly compensated individuals.  If employer contributions exceed $500, additional compliance obligations apply.
4HSA, HRA and FSA debit cards are automatically restricted  for use with medical service providers and for items purchased at retail that are identified as qualified medical expenses based on electronic inventory control codes.   
5HSA distributions subject to IRS audit to prove they do not exceed out of pocket qualified medical expenses since HSA opened.
6PHS Act sec 2711, per DOL FAQ re: PPACA Part XI Q1, Q3
http://www.dol.gov/ebsa/faqs/faq-aca11.html HRA Enrollees must be enrolled in group health plan.
7Dental, vision, accident, disability, long-term care, workers’ compensation, specified disease or illness and fixed dollar hospitalization, certain deductible plans.
8Employers may elect to have (i) a “grace” period for employees to use leftover funds from a previous plan year to pay for expenses incurred in the period up to 2 months and 15 days into the new plan year; or (ii) a carryover of up to $500 to the new plan year for payment of medical expenses during the entire year in which it is carried over.

This Plan Comparison Chart is a summary of differences between plan types, and it does not describe all of the rules and limitations that apply to these arrangements. It is not legal or tax advice. See IRS Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans, for more information on HSAs, HRAs, and FSAs.

For more information about our Paychex Benefit Accounts, call us at 1-800-322-7292.

Follow Us: