It’s the cross-section of everyone’s favorite topics…healthcare and taxes! Trying to navigate the alphabet soup of employee health benefits can be a migraine-inducing task.
Healthcare insurance and expenses continue to rise. An HRA, FSA, and HSA can be a great way to help offset some of the increases. The aforementioned accounts can help you pay for qualified healthcare expenses, like deductibles, copays, coinsurance, and prescription costs, while saving on taxes at the same time.
Here are some important differences you should consider when determining which account is the best fit for your needs:
| Type of Tax-Advantaged Account | Health Reimbursement Arrangement (HRA) | Flexible Spending Account (FSA) | Health Savings Account (HSA) |
| Who funds it? | Employer-only | Employer or Employee | Employer or Employee |
| Who is eligible to use? | Only offered in conjunction with employer-provided health plans | Only offered in conjunction with employer-provided health plans | Must have a high deductible health plan (HDHP) |
| How much can you contribute each year? | None; 100% employer-funded | $2,650 | Individual: $3,500, Family: $7,000 |
| How much can be rolled over each year? | Allowed at employer’s discretion | Allowed at employer’s discretion; $500/year maximum | Full rollover allowed |
| Can it be transferred from one employer to another? | Portable at employer’s discretion | No | Full portability allowed |
| How is it taxed? | Contributions not included in income; tax-free reimbursements for medical expenses | Contributions not included in income; tax-free reimbursements for medical expenses | Contributions not included in income; tax-free reimbursements for medical expenses |
| What can it be used for? | Medical, dental, vision, and prescription expenses. | Medical, dental, vision, and prescription expenses. | Medical, dental, vision, and prescription expenses. COBRA, retiree medical insurance premiums, long-term care premiums/expenses. |
Choosing which account or accounts to contribute to and how much to contribute will vary from person-to-person. A good rule of thumb as you begin thinking about these accounts and how much to contribute is to determine how much would be needed to cover your deductible, expected medication costs, anticipated doctor’s visits, etc.
Consider using an online calculator to help start the conversation. Also, don’t be afraid to ask your HR representative as you come across questions or work with your financial planner to help determine the best plan of action for you and your family.