Spending, Saving, Reimbursing:
Different Accounts for Different Needs
With the various types of reimbursement accounts available, it can be confusing to know the differences or benefits of each. Each of these accounts serves a different purpose. They not only offer tax advantages; they also encourage greater employee engagement in financial wellness.
High Deductible Health Plan (HDHP):
An HDHP is a plan with a higher deductible (and usually lower premium) than a traditional insurance plan. Because the deductible is higher, the HDHP can be combined with a health savings account (HSA), to help members pay for certain medical expenses with money free from federal taxes.
The IRS sets the minimum deductibles for HDHPs to be eligible to have an HSA. For 2020, HSA-qualified plans have a deductible of at least $1,400 for an individual or $2,800 for a family. The plan’s total yearly out-of-pocket expenses (including deductibles, copayments, and coinsurance) are capped at $6,900 for an individual or $13,800 for a family. (This limit doesn't apply to out-of-network services.)
Health Savings Account (HSA):
An HSA is a savings tool that helps HDHP members cover the cost of plan deductibles, while empowering them to plan for future health care expenses. Employees’ contributions, withdrawals for eligible expenses and interest earnings are all tax-free. Unspent HSA funds roll over year to year. After retirement, HSA funds may be used for health-related expenses also.
Flexible Spending Account (FSA):
An FSA is an employer-sponsored benefits program that enables employees to deduct pre-tax dollars from their paychecks to pay for qualified medical expenses. Employees must use FSA funds within the plan year because they do not roll over year to year. Any unused funds are returned to the employer at the end of the year. Contributions to an FSA are limited by the IRS to $2,650 per year.
Health Reimbursement Arrangement (HRA):
HRAs are employer-owned accounts that are used by employees for specific medical expenses, such as deductibles, copayments, coinsurance, dental or vision. Contributions are made solely by the employer. Unused funds are either returned to the employer at the end of the plan year or rolled over to the next year. There is no minimum or maximum amount.
This summary is not an endorsement of any of these plans and is not investment advice. Eligibility rules may apply. Certain features may vary by employer group, the plan offering it and the individual’s own circumstances.