December 13, 2011
Do Health Savings Accounts Work With a Health Reimbursement Arrangement?
Health Savings Accounts are allowed with Health Reimbursement Arrangements as long as the HRA does not reimburse expenses that would otherwise go toward the deductible of the HSA-qualified health insurance plan.
When there is an employer/employee business relationship, such as your spouse works at least part-time in the business, you can set up a Health Reimbursement Arrangement so that your business can reimburse you for health insurance and other health care expenses.
Otherwise, medical expenses are only deductible to the degree that they exceed 7.5 percent of your adjusted gross income (AGI). For example, if your AGI is $80,000 and you have $8,000 in medical expenses, you’ll only be able to deduct $2,000.
Establishing a HRA makes the entire $8,000 deductible as a business expense. You can see how this could save you thousands of dollars.
More information and an online process to establish your HRA right away is available on our Health Reimbursement Arrangements page.
Posted by Wiley Long at 11:56 AM | Comments (0)
January 24, 2011
Health Savings Accounts And Health Reimbursement Arrangements
Are Health Savings Accounts different from Health Reimbursement Arrangements? Both are usually combined with a high-deductible health insurance plan, but there are significant differences that you'll want to understand.
Only the employer may fund an HRA plan, which cannot be funded by a salary reduction. Employers can deduct 100 percent of their contributions and the deposits are tax-free for employees.
In contrast, both the employer and employee can contribute to HSA Health Plans. HSA Plans have no minimum contribution requirement, but up to $3,050 may be deposited annually into an individual HSA. An HSA may also be established as a family account. In that case, up to $6,150 may be deposited. Those between 55 and 65 years of age are allowed to make "catch up" contributions of an additional $1,000 a year.
Whatever an employee contributes to an HSA by April 15th will be treated as an "above the line" deduction even if the employee doesn't itemize and takes the standard deduction.
Employers can also contribute to an employee's Health Savings Account. These contributions are "excluded" from the employee's income.
Ownership Issues
An HSA remains with the employee whether they are discharged, change jobs or retire. Employees manage which financial institution administers an HSA, how funds are invested and withdrawn. Withdrawals are allowed for a wide range of health care, but new laws exclude over-the-counter medicines like cold remedies. How HSA funds may be used is set by law.
Employers decide how Health Reimbursement Arrangements can be used and can offer limited or comprehensive options.
An HRA is under the employers control at the end of the plan year. The employer can keep any or all unused funds. HSA funds remain with the employee at the end of the year and roll over year after year to accumulate and grow with tax-free interest.
Retirement Options
If HSA withdrawals are made for non-qualified expenses prior to age 65, the law requires a 20-percent penalty and the withdrawal is taxable.
Turning 65 allows an HSA owner to use HSA funds without restrictions, but withdrawals for non-qualified health care are taxable. There is no requirement to begin withdrawing HSA funds at any particular age, unlike IRA requirements. Employers control whether funds remain with employees to be used for retirement. Learn more about HSA Plans on our website at: http://www.health--savings--accounts.com
Posted by Wiley Long at 10:11 AM | Comments (0)
November 29, 2007
The Differences Between Health Savings Accounts and Health Reimbursement Accounts
Employees may not know their health insurance terms as well as they think they do. Even though 61 percent of workers polled in a recent Fidelity Investments survey said they have a good working knowledge of their health care benefits, more than half did not know about a Health Savings Account or Health Reimbursement Account.
Health Savings Accounts (HSAs) and Health Reimbursement Accounts (HRAs) may not be big conversation items, but chances are you or somebody you know will have one soon.
Forty-three percent of corporations now offer insurance plans with low premiums but high deductibles, according to data from the International Foundation of Employee Benefit Plans.
The tax-advantaged Health Savings Accounts and Health Reimbursement Accounts typically go alongside high-deductible health plans to fill the gap between where medical costs start and where medical insurance starts paying.
"Are they a benefit or do they hurt? It depends," said Paul Fronstin, director of health research for the Employee Benefit Research Institute, a Washington-based group studying and trying to shape employee benefit programs and health care public policy.
High-deductible health plans associated with HSAs and HRAs typically provide more choice than health maintenance organizations, but HMOs require lower out-of-pocket expenses for patients.
"Someone could be coming from an HMO situation where they were tied to a restrictive network of doctors and they're willing to pay to have more choice," Fronstin said.
He said HSAs and HRAs may be less favorable for lower-income, unhealthy people, because out-of-pocket expenses increase with the amount of health care services used.
Since these types of accounts first began to take shape in 2001, more consumers have been exposed to the true cost of medical care in this country.
Health Savings Accounts and Health Reimbursement Accounts look similar at first glance.
In both cases, pretax dollars are earmarked to pay deductibles or for services not typically covered by insurance, such as eye care and orthodontia.
Key differences
But a few key differences make one better for workers and the other a potential money-saver for employers, Fronstin said.
The main difference involves who keeps money earmarked for health care but not spent. It's the employee under HSAs, the company under HRAs.
HRAs emerged as a way to help cover deductibles — the money patients have to spend before an insurance plan kicks in. As employers wrangled with rising health care costs, HRAs used in conjunction with high-deductible health plans gained traction.
Austin-based Whole Foods Market offers HRAs to its employees. Full-time workers don't pay any health insurance premium out of their own paychecks, but are covered under a high deductible insurance plan coupled with an HRA. Whole Foods funds the accounts; the more years of service, the greater the contribution.
"Team members can choose what eligible expenses they want to pay for with their HRA dollars," spokeswoman Ashley Hawkins said.
High deductibles a must
Jay Donnella, a director at insurance brokerage firm Frank Crystal & Co., thinks HRAs make sense for a lot of employers. By law, health savings accounts must be paired with high-deductible plans.
For 2007, the Internal Revenue Service defines high deductibles as at least $1,100 for self-only coverage and $2,200 for family coverage.
There is no minimum deductible for plans paired with reimbursement accounts, which means employers can add them to existing health plans even if they carry low deductibles.
A typical company might pledge an employee $1,000 a year in an HRA to help defer deductibles or other health expenses.
But an HRA is essentially a promise to pay health care costs employees submit.
Whatever isn't spent at the end of the year stays in the company's coffers.
Statistics show less than 20 percent of workers exceed $1,000 in out-of-pocket expenses, so much of the money committed to HRAs never is paid.
"It's the promise of payment, but most dollars never leave the company," Donnella said.
Fronstin said some companies opt to let reimbursement account dollars accrue from year to year, but when employees leave the firm that money rarely leaves with them.
The HSA advantage
That's where Health Savings Accounts give employees a distinct advantage, he said.
Instead of just the promise of payment, employers actually contribute money to an HSA. Workers can put money in as well, as can third parties such as parents or in-laws.
Whatever money goes into the account becomes the employee's, drawing interest and rolling over from year to year. HSAs are portable, so leaving for a new job doesn't mean walking away from valuable health care dollars.
Fronstin said seeing a pot of money building up for future health care and even retirement-stage expenses is a good incentive for employees not to overuse the medical system.
"With an HSA, the money is yours. That changes behavior. HRAs get viewed as employer money. The mentality that can take over is, 'Don't leave anything on the table,' " Fronstin said.
There's a triple tax break in play as well.
Employees don't pay income tax on funds contributed to an HSA, with a maximum contribution of $2,850 for individual coverage and $5,650 for family coverage, under IRS rules for 2007.
Interest on the account also is tax-free.
Finally, when dollars are withdrawn from the HSA, they are not taxed so long as the money is used for medical purposes.
There are potential drawbacks for employers that contribute to HSAs.
Once money is put in an account, it's forever lost to the company.
Also, HSA dollars can be used like money in any savings account for nonmedical expenses, though that triggers taxes and penalties.
HSAs skyrocket
While reimbursement accounts have gained popularity in the market, HSAs have skyrocketed.
According to America's Health Insurance Plans, an insurance industry trade association in Washington, low-premium, high-deductible plans offered in conjunction with HSAs tripled from 2005 to 2006.
George Owoc is director of business administration for Astrium North America, a 23-employee U.S. subsidiary of EADS, the European aerospace giant that also owns Airbus.
He arranged a health plan-HSA combo through Blue Cross Blue Shield of Texas that covers 100 percent of employees' deductible costs while giving the company an insurance renewal rate that only increased by 1 percent last year.
Astrium was getting nailed with huge premium increases year after year when Owoc realized the company and its workers were shelling out close to $15,000 per person per year to give them medical coverage with a traditional $250 deductible for families.
By hiking that deductible to $5,000 a year, Astrium dialed down its premium costs. Instead of making employees pay the deductible, the company deposits money into employee HSAs to cover the full deductible of $5,000 for a family or $2,500 for individual coverage.
"Blue Cross knows it won't have front-end expenses, and we're not spending any more than we already were," Owoc said.
"If an employee only spends $1,000 out of the $5,000 we give them, they have $4,000 that remains in that account and earns interest and goes with him or her. It can be used for medical expenses even after retirement, no matter what plan they're with then."
"Once we explained everything to them, people were calling me and thanking me. That never happens when you're in this kind of an administrative position."
Posted by Wiley Long at 11:20 AM | Comments (0)
April 09, 2007
Health Savings Accounts and HRA Plans for Small Business Owners
With group health insurance rates continuing to rise, more small business owners are turning to Health Savings Accounts combined with a Health Reimbursement Arrangement (HRA) as a way to help their employees obtain health insurance. With this type of arrangement, the business reimburses employees for the cost of their individual health insurance plans, instead of offering a group plan. Employees end up with less expensive, permanent coverage that they can take with them if they ever leave the business thanks to their Health Savings Account plan.
What Is an HRA?
A Health Reimbursement Arrangement (HRA) is simply an arrangement where an employer reimburses employees tax-free for qualified medical expenses, including health insurance premiums. HRAs are also known as Section 105 plans, named after the section in the U.S. Tax Code that governs them.
Group health insurance is “guaranteed issue,” meaning that the insurance companies must accept any applicant, regardless of pre-existing health conditions. As a result, group insurance premiums are about twice as expensive as individual plans, and approximately 40% of small business owners can no longer afford to offer health insurance to their employees.
Companies cannot purchase individual health insurance for their employees, but if they have an HRA set up they can reimburse them for their medical expenses, including the cost of health insurance. The reimbursement is considered a tax-free fringe benefit to the employee, so it is a much better value than simply receiving a pay increase.
Because some companies are now offering online HRA plan set up, they are also now extremely easy to set up and to manage. The employer simply provides a fixed monthly tax-free contribution to an HRA for each participant. The HRA then enables employees to obtain reimbursement for qualifying medical expenses, including health insurance premiums.
Your employees can then select an affordable plan customized to their own needs and budget. One great advantage to the employee is that the coverage is totally portable – if they ever leave their employer they can take the coverage with them. They do not have to worry about COBRA, or about being tied down to their job just because they need the health insurance.
These plans are primarily being adopted by small companies with employees who are all in good health. Because insurance companies are allowed to “underwrite” individual health insurance applications, someone with some pre-existing health problems could be denied coverage.
The average group health insurance premium for a family is nearly $14,000 per year. However, the average premium of an individually underwritten plan can be less than $300 per month. So it is not surprising that as more small business owners learn how they can use an HRA to reimburse individually underwritten health insurance plans, their popularity continues to soar.
Learn more about Health Reimbursement Arrangements and Health Savings Accounts at: http://www.Health--Savings--Accounts.com
Posted by Wiley Long at 09:35 AM | Comments (6)