You have most likely heard of companies offering HSA, HRA or FSA accounts to their employees. These accounts are usually integrated with a medical plan and the purpose is to help both the employee and employer with healthcare related costs. But how do these employer-sponsored benefit accounts differ and why do companies offer them to their employees? Read on to find out!
Why Do Groups Utilize Employer-Sponsored Benefit Accounts?
There are many reasons why these types of accounts are worth offering to employees. Let’s look at how these accounts can help both employers and employees:
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Why are HSA, FSA and HRA accounts good for employees:
These plans can help employees offset the high cost of healthcare expenses. Even though your employees may have insurance, deductibles can reach upwards of $6,000! Not everyone can easily afford to meet their medical deductibles. Employers can choose to contribute to these accounts to help ease the burden of high deductibles. Some of these funds can be used for other medical related expenses as well, not just health insurance plan expenses.
Additionally, these plans permit tax-advantaged contributions for employees. Employees can contribute to HSA and FSA plans on a pre-tax basis. This reduces their total taxable income which will save them money! Additional tax benefits can include tax-free growth and distributions.
Some of these plans will also allow you to rollover unused funds to the next year. This allows employees that do not normally use their health insurance plan to save up for unexpected medical emergencies from year to year.
Lastly, some of these plans are owned by the employees and they can keep them even if they switch jobs.
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Why are HSA, FSA and HRA accounts good for employers:
Providing these contribution accounts to your employees is investing your money into your employees physical, mental and financial health. This is a above and beyond contribution that can mean a lot to your employees. It will have a positive affect on your company to take care of your most valuable resource, your employees.
Like the benefit to employee, these accounts can sometimes help employers save money as well! That is because these accounts allow you to have more flexibility in designing your company health benefits. With flexibility comes the opportunity to create cost savings.
Consumer-driven health care is another advantage to these accounts. By giving your employees money in accounts that, in some cases, will roll over at the end of the year, you are encouraging them to be more thoughtful and inquisitive about their health care choices. It may also motivate employees to take preventative health care more serious; so they do not have to spend the money you have given them via a benefit account.
Lastly, some of these accounts can offer tax benefits to employers. HRA accounts are owned by employers and they can receive tax breaks for contributing money.
What is the Difference Between an HSA, FSA and HRA?
There are numerous differences between these three types of accounts. We will go over the most important differences below:
Health Savings Account (HSA)
Owned By: Employee.
Who can contribute: Employee and Employer.
Contribution Limit: $3500/individual and $7000/family. If you are over 55 you can contribute an extra $1000. Tax-free.
Health Plan Required: HSA qualified, high deductible health plan (HDHP)
Rollover: At the end of the year, all funds rollover to the next year.
Owner Eligibility: Self-Employed/S Corp, C Corp, LLC Owners/Partners.
An HSA is owned solely by the employee. This means that this account stays with the employee, no matter where they are employed. This account offers a triple tax benefit with the contributions, qualifying withdraws and interest earned all being tax-free. The ability for an HSA to invest funds once you meet a minimum threshold also sets it apart from the other two types of accounts.
As health insurance gets more expensive and employers cut benefits to save costs, HSAs will continue to gain popularity. Employees like the lower premiums offered by high deductible, HSA-qualified plans. Another reason HSA plans are being utilized with greater frequency is that people are realizing more and more that future medical expenses are something that should be planned for. An HSA offers the incentives and flexibility that make it a great vehicle for this type of saving.
Any employer contributions count towards your annual allowed contribution amount.
Health Reimbursement Arrangement (HRA)
Owned By: Employer (held in employee’s name).
Who can contribute: Employer Only, tax-free.
Contribution Limit: None.
Health Plan Required: Works with any employer health plan that meets health care reform requirements.
Rollover: At the end of the year, all funds rollover to the next year if the employer plan allows it.
Owner Eligibility: C Corp
An HRA is owned and operated by the employer. This account promises to cover the employees eligible claims up to a certain dollar amount. This means that employers do not have any financial liability “upfront” and they only pay out when an employee has an eligible claim. These plans offer the employer the flexibility to design their plan in a number of different ways in order to achieve their goals. For instance, the employer could offer to cover the second half of employees deductibles in order to reduce the financial strain on the company while still helping employees with large medical expenses.
Employees will not always use the full amount of their HRA and the company decides whether any of the money rolls over to the next year.
Flexible Savings Account (FSA)
Owned By: Employer (held in employee’s name).
Who can contribute: Employee and Employer.
Contribution Limit: $2700 by employee. Employer can match up to $2700.
Health Plan Required: Works with any employer health plan.
Rollover: Rollover of $500 or 2.5 month grace period to spend unused balance if employer plan allows it.
Owner Eligibility: C Corp
Health FSAs used to be “use it or lose” accounts. But the rules changed in 2007 to allow up to $500 to rollover or have 2.5 extra months to spend any amount left over. The employer is the one who chooses which of these extenders is added onto the group FSA. These changes made FSA accounts more attractive but they still have limitations that make employees wary of using them. The prospect of losing money if you overestimate your yearly expenses can make using an FSA risky. However if an employee has consistent, planned medical expenses then an FSA can be a great option.
Here is a great comparison chart with more details on the difference between HSA, FSA and HRA accounts: HSA vs HRA vs FSA
Which account is best for your company?
Well, that depends on your goals. That is where Georgia Health Insurance comes in. We provide our clients with honest, expert advise based on the goals they have for their employee benefits. We encourage you to visit the group section of our website, read a bit more about how we can help you, check out our reviews and give us a call!
HSA, HRA and FSA Provider Example: Paylocity
Paylocity is one of the companies we recommend for payroll, HR and employer-sponsored benefit accounts. They offer a great combination of technology, service, knowledge and competitive pricing. They also offer a great integration with the benefit management system we offer, Employee Navigator.
When asked them a couple of questions regarding trends HSA, HRA and FSA accounts:
“We see all size employer groups utilizing FSA, HSA and HRAs, but the primary focus is more often for those above 20 employees.
Since FSAs have been around since 1978, they are the most utilized, however HSAs are definitely moving to the forefront as health insurance costs continue to skyrocket.
Legislation has changed in the past 4 years changing the Use-It-Or-Lose-It provision on FSAs which helped increase participation, but it has now leveled off to about 18-20% of an employer’s benefit eligible population participating.
HSAs will vary in participation depending on whether or not there is an employer contribution. Without one, the participation is around 20-30 % in the first year, with an ER contribution, 90%.
HRAs are employer funded and so are not as popular, but with the new legislative changes effective January 1st, 2020 we expect to see an increase there as well. They are most often utilized by small employer groups.”
How Much Does it Cost to Utilize Employer-Sponsored Benefit Accounts?
One of the reasons we normally see these accounts being utilized by companies with over 20+ employees is because of the fees. It is usually based on a per member per month fee that can range from $1.50 to $6+ depending on the plans and size of the group. Most of the companies that offer to administer these accounts will have a minimum monthly billing amount as well.
However they can still be set up for smaller groups at a reasonable price and can provide all the benefits listed in this article.
Do You Want to Learn More About FSA, HSA and HRA Accounts? You can reach out to us in a number of ways:
