How Do You Choose Between FSA's, HSA's, and HRA's?
One of the benefits that employees are looking for when choosing a company is healthcare and healthcare-related items.
Some of these items employees are looking for are flexible spending accounts (FSA’s), health savings account (HAS’s), and health reimbursement arrangement (HRA’s). While all related to healthcare, there are differences in these accounts that you’ll want to understand better when choosing one to offer your employees.
Flexible Spending Accounts (FSA)
An FSA allows employees to set aside pretax dollars that can later be used to pay for qualified medical and dependent care expenses such as copays, contacts/glasses, or prescriptions. In addition to employees contributing to FSA, as a small business owner you can choose to contribute to the account. Typically FSA accounts are valid for the plan year, and employees must “use or lose” the amount they contribute. As a business owner, you can choose to permit rollovers of up to $500 in FSA funds or offer a two 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. It’s also important to note that any employer/payroll deposits and claim payments are tax-free.
Health Savings Account (HSA)
HSA’s are another type of savings account that can be funded with pre-tax dollars. However, employees can only contribute if they have a high deductible health plan. Generally, high deductible health plan premiums are lower than more traditional health plans, which means offering this type of plan to your employees can save you money. Individuals, employees, and employers can contribute to HSA’s, and contributions are tax-free, along with any investment gains. Withdrawals used for qualified expenses or post-retirement care are also tax-free.
Health Reimbursement Arrangement (HRA)
HRA’s are employer-funded plans that can be used to supplement health insurance benefits and pay for a range of medical expenses that are not covered by insurance. Unlike the previous plans, HRA’s are solely funded by the employer, meaning employees are unable to contribute to this savings plan. HRA’s tend to be a popular choice among business owners because they are among the most flexible types of employee benefits plans. As an example, an HRA could be paired with an FSA. Additionally, based on the plan chosen, an employer can generate significant savings in health benefits.
If you’re choosing to offer health insurance options to your small business employees, there are more options you will want to consider, but knowing about these additional savings plans is helpful. With a competitive job market, the benefit of health insurance, and savings plans for what insurance doesn’t cover is considered a big perk to your prospective employees.