FSAs, HSAs, or HRAs - What's Best for Your Business?
An on-site HR professional can make a crucial difference in all aspects of human resources, including the critical health benefits choices you make for your employees. A skilled, experienced HR generalist can offer key insights into which options may be the “right fit” for a company of your size and workforce.
Businesses that plunge into the “health benefits thicket” without such assistance often end up wasting valuable time and money before landing on the best solution for their HR needs.
In the field of employee benefits, the major options for managing benefit costs include Flexible Spending Accounts (FSAs), Health Savings Accounts (HSAs) and Health Reimbursement Arrangements (HRAs). What do these accounts offer and what’s the difference in benefits to you and your employees?
Flexible Spending Accounts
Funded by employees, an FSA is an employer-established plan that pays for qualified medical and dependent-care expenses with pretax dollars, prior to federal withholding, FICA or state withholding taxes (in most states) being applied to the amount deducted from the employee’s pay. Employers and employees may both contribute to the FSA. The employer may choose to permit rollovers of up to $500 in FSA funds, or offer a two-and-one-half month grace period after the end of the plan year to incur services which can be reimbursed from an employee’s previous year account balance. Also, employer/payroll deposits and claim payments are tax-free.
Health Savings Account
With an HSA, a business saves money on the insurance plan because a qualified high-deductible health plan is required in order for employees to contribute to the plan. In general, high-deductible health plan premiums are lower than more traditional plans. Employees can use an HSA to cover qualified medical expenses. Individuals, employees, and employers can contribute to the account. Contributions are tax-free, as are interest and any gains in investment. Withdrawals used for qualified expenses or post-retirement care are also tax-free. Qualified HSAs can accrue interest on a tax-deferred basis. If the account balance reaches the minimum balance requirement, funds may be invested in mutual funds and those gains are also tax-free.
Health Reimbursement Arrangement
This employer-funded plan can be used to supplement health insurance benefits and pay for a range of medical expenses not covered by insurance. Reimbursements made to employees are tax-deductible for the employer and tax-free to employees. HRAs are popular because they are among the most flexible types of employee benefits plans. Depending on the design of the plan chosen, an employer can generate a significant savings in health benefits.
Obviously, these three major reimbursement options must be studied closely in order to determine which plan is of greatest benefit to you. If your company lacks the presence of a trained and knowledgeable benefits specialist, this is a great opportunity to look into the services of an on-site HR professional. This person has the knowledge and skills to cut through the “noise” of competing health benefits plans and help you reduce your employee healthcare costs without lessening their benefits. By managing health insurance costs, your benefits packages can have greater depth and flexibility — while also promoting employee wellness and healthy lifestyle alternatives.
Find out more about how an on-site HR professional can help educate you, your management staff, and your employees on the health insurance options that best meet your company’s specific needs.