Empower Employees to the Most of Health Care Benefits in the New Year

It’s a new year, which in most cases means a fresh start for employee health care benefits. As an HR professional or benefits specialist, or even as a broker with employer clients, you can do your part to help participants maximize the value of their flexible spending accounts (FSAs), health savings accounts (HSAs), and health reimbursement arrangements (HRAs) from the get-go. In this article, we’ll give an overview of each of these health care benefits with pro tips to help participants make the most of their accounts from day one.

Flexible Spending Account (FSA)

What it is

An FSA is a fund employees can use to offset their out-of-pocket health care costs by setting aside tax-free dollars for eligible medical expenses. Employees allocate FSA funds from their paycheck before taxes are deducted (up to the IRS contribution limit of $2,750), so they get more value from these tax-free dollars to cover health care spending. Employees choose the amount they want to contribute to the FSA at the beginning of the year and, by the end of the plan year, they must spend the remaining FSA dollars because these funds don’t roll over.

How Employees Can Make the Most of It

To help employees make the most of an FSA at the beginning of the plan year, advise them to consider their health care spending from the previous year to determine how much they should allocate for their FSA. Be clear that FSA funds don’t roll over at the end of the year (unless a grace period or $500 rollover is part of the plan design), so employees need to be smart about how much they contribute and how they spend it throughout the year. It’s also important that employees know what health care expenses are eligible to pay for with FSA dollars.

Health Savings Account (HSA)

What it is

For employees enrolled in a high deductible health plan (HDHP), an HSA is a savings tool that employees can contribute tax-free funds to each year for health care spending. In addition to savings opportunities, employees can use HSA dollars to offset high out-of-pocket health care costs like an FSA. HSA funds, however, roll over year after year, accruing throughout an employee’s career and into retirement. Employees can opt to reinvest HSA savings to increase the value just as one might with funds in a 401(k) or IRA. But unlike a 401(k) or IRA, HSA funds are triple tax-advantaged, with no taxes paid on the money invested, earned, or withdrawn when used for eligible health care expenses before retirement.

How Employees Can Make the Most of It

Communicate the advantages of an HSA for offsetting medical costs now, as well as for saving for retirement. Many employees don’t realize how much money they will need for long-term health expenses, but an HSA can help give them a leg up on retirement savings. You should inform them of the 2020 HSA contribution limits set by the IRS, and for any employees over 55, notify them that they may be able to contribute an extra $1,000 over the limit to catch up for retirement health care savings. As with an FSA, it is crucial to make sure employees understand what health care items and services are eligible for coverage by an HSA so they can decide how to allot their funds.

Health Reimbursement Arrangement (HRA)

What it is

An HRA is an employer-funded health care spending account in which the employer sets aside tax-advantaged funds for employees to pay for health care expenses in lieu of—or in addition to—group health insurance coverage. Employees can draw on these tax-free dollars throughout their employment to cover qualified medical costs or, and, in some cases, insurance premiums for other health care benefits outside the employer. Employees cannot contribute money to their HRA accounts. Generally, an employee will pay for medical expenses out-of-pocket and submit a reimbursement request to their employer, but in some cases, an employer may offer a payment card that can be used to pay for eligible health care expenses up front. Learn more about the different types of HRAs in this post.

How Employees Can Make the Most of It

To guide employees to make the most of their HRA funds, ensure that they know the type of HRA account they have and what expenses are eligible. Employers can set monthly and annual spending limits for HRA funds and can determine what items and services qualify for reimbursements. Aside from any limitations an employer may stipulate, there are hundreds of eligible medical expenses that employees can pay for using HRA funds, and in many cases, they can also use these tax-free dollars to pay for coinsurance, deductibles, and copayments for medical appointments.

Eligible Health Care Expenses

For all health care benefits programs, it is key that employees know what medical expenses are eligible, including items and services such as over-the-counter medications, hospital stays, surgeries, alternative treatments, and copays for doctor’s appointments. To allocate the right amount of money to these accounts, it’s important that employees understand exactly what health care expenses are eligible under an FSA, HSA, and HRA plan. As the person responsible for advising employees on eligible medical spending for these health benefits programs, you should also be knowledgeable about what items and services qualify for coverage.

Start your year in the know by downloading our eligible expense sheets, listing categories of qualified health care expenses for FSAs, HSAs, and HRAs. This sheet will be handy for benefits specialists, brokers, employers, and participants alike!