Pre-tax health accounts are a great way to save on your yearly medical expenses. Check out our analysis of the most popular offerings to help make an informed decision when enrolling in benefits this year.
Flexible Spending Accounts (FSAs)
A Medical Flexible Spending Account (Medical FSA) helps ease the burden of paying for health care by allowing you to use tax-free money to pay for your family’s eligible medical expenses. After you set an election during your company’s benefits enrollment period, you have access to that full election (all of the money in the account) on the first day of the plan year.
You can use the money in a Medical FSA for qualified medical expenses. This includes coinsurance and copays, your deductible, dental or vision expenses, and over-the-counter drugs and medicines. Check your Plan Highlights for additional information regarding eligible expenses.
There are two main reasons to participate in a Medical FSA:
- It helps with cash flow. The full annual election is available at the start of the plan year.
- It’s flexible. Unlike Health Savings Accounts (HSAs) or Health Reimbursement Accounts (HRAs), a Medical FSA doesn’t have any specific insurance requirements (or restrictions), so most people are eligible to enroll.
Limited Purpose FSA
A Limited Purpose Flexible Spending Account (Limited FSA) allows you to pay for vision and dental services with tax-free money. This FSA typically partners alongside a Health Savings Account (HSA), which requires that you have HSA-compatible health coverage.
A Limited FSA can pay for qualified vision and dental expenses, including orthodontia services and some over-the-counter drugs and medicines. You cannot use a Limited FSA for health payments such as copayments, coinsurance, or your deductible.
This account is a great partner plan if you have or want to enroll in a Health Savings Account. The full annual election is available at the beginning of the plan year, allowing you to save on dental and vision costs while letting funds build in your HSA.
Health Savings Account (HSA)
A Health Savings Account (HSA) is like a piggy bank for medical expenses with funds that build over time. You can use the funds now, or save them for the future. Additionally, the HSA funds can earn interest, tax-free. If you want to enroll in an HSA, you’ll need to enroll in an HSA-compatible health plan.
The money in an HSA can pay for qualified medical expenses for you or your dependents (if filed on your taxes). HSA funds can be used at any time after the HSA is opened. You should always save your receipts after making an HSA-qualified purchase, as this will allow you to reimburse yourself from the HSA at a later date. Finally, in addition to using an HSA for eligible medical expenses, it can be used as a retirement account (however, taxes may apply).
An HSA is probably one of the best health and financial choices you can make, as long as you are eligible for an account.
- An HSA is yours. Unlike other benefit plans, the money in an HSA belongs to you and rolls over automatically every year. You take it with you even if your employment changes.
- An HSA has no time limit. You can use it every day or let it stay in the account to accumulate as savings.
You can choose to use up all the funds every year — or let them roll over for months, years, or even decades.
- Invest HSA funds. This is the only pre-tax account with funds that you can invest.
- An HSA offers a triple-tax benefit. Money deposited, interest earned, and withdrawals for medical expenses are not taxed.
Health Reimbursement Account (HRA)
A Health Reimbursement Account (HRA) is an employer-sponsored account to help you pay certain out-of-pocket medical expenses. The HRA is typically available to participants of a certain group health plan determined by your employer. HRA funds are provided by your employer and are not a taxable benefit to you. This helps to reduce your out-of-pocket expenses without raising your tax burden.
Use your HRA funds for certain out-of-pocket medical expenses set by your employer. This could include coinsurance and copays, your deductible, dental or vision expenses, and/or over-the-counter drugs and medicines. Check your Plan Highlights for additional information regarding eligible expenses.
A Health Reimbursement Arrangement Voluntary Employee Beneficiary Account (HRA VEBA) is a trust account designed to help you pay certain out-of-pocket medical expenses now, after retirement, and through employment changes. HRA VEBA funds are contributed by your employer and are not a taxable benefit to you. This helps to reduce your out-of-pocket expenses without raising your tax burden. Additionally, funds are automatically deposited into a Stable Value Fund (SVF), which is a conservative fund investment option with a stable value guarantee.
The funds in an HRA will cover certain out-of-pocket medical expenses as determined by your employer. You may also be eligible for reimbursement of health insurance premiums during retirement. Check your Plan Highlights for additional information regarding what’s eligible.
An HRA VEBA is a financial tool that allows you to save on some of your healthcare expenses. It provides several unique features, including:
- Funding: This account is funded by your employer or through collectively bargained arrangements.
- Health Plan Requirements: Individuals still active at the company must be on an employer-sponsored health plan to be eligible for an HRA VEBA. Ask your employer which plans are eligible.
- Use of Funds: Funds become available as they are deposited into your account. Unused funds stay in your account to invest or earn interest. Funds carry over from month-to-month and year-to-year.
- Investment Opportunities: You can manage your SVF portfolio to grow your funds even more.
- Medicare Eligibility: You remain eligible for Medicare parts B, C, D, and Medigap even if you have funds in an HRA VEBA.
This Open Enrollment, make the right choice.
Review the pre-tax health account(s) offered by your employer and enroll in the one that best suits your needs. Ask your employer for more details on when (and how) you can enroll.