Spending accountsFor self-funded businesses
With tax advantages for both you and your employees, spending accounts make a smart addition to your health plans.
Health savings accounts (HSAs)
HSAs offer your employees a tax-advantaged way to save and pay for qualified out-of-pocket health care expenses. To enroll in an HSA, the employee must be covered by a qualified high-deductible health plan (QHDHP). HSAs can be funded by an employer, an employee, or both.
Employees contribute to HSAs through pre-tax payroll deduction, check, or online transfer. Contributions are tax-deductible, and distributions are tax-free when used to pay for qualified medical expenses. Interest and earnings are also tax-free.1
Employers may make pre-tax contributions to their employees’ HSAs. These contributions are not subject to withholding from wages for income tax or subject to FICA, FUTA, or the Railroad Retirement Act.
The HSA is employee-owned — so if he or she changes jobs, the account goes with that employee. In addition to using the HSA to pay for out-of-pocket health care costs, employees may also open an optional investment account with a portion of their funds, allowing the HSA to become an investment vehicle.2
Health reimbursement arrangements (HRAs)
HRAs are tax-advantaged accounts funded with employer dollars to pay employee expenses not covered by their health plan. Employers outline what expenses will be covered by the HRA within the limitations outlined by Internal Revenue Service Publication 969, and employers can deduct the amount of their contributions when employees use the funds. Although an HRA can have an option to carry forward unused funds, an employee cannot take their HRA funds to a new employer.
HRAs offer employers flexibility and a wide range of options to align with your organization’s overall health care and financial strategies.
Features of the HRA include:
- Flexible coverage options — including deductible, copay and/or coinsurance, limited types of expenses3
- The ability to reimburse for incurred claims or to include an employee up-front out-of-pocket requirement before the HRA covers eligible expenses
- Easy enrollment based upon medical plan election
- Easy account maintenance
- Availability of a direct payment to provider option
- Optional no-cost debit cards
Flexible spending accounts (FSAs)
FSAs are personal accounts funded by employees. An FSA lets your employees set aside pre-tax dollars to pay for eligible expenses like health care and/or dependent care, depending on plan type. Employers benefit by offering FSAs because participation reduces employees’ taxable income — which can reduce FICA taxes for employers.
The health care FSA pairs with our medical products and services to improve the experience for members and help them take full advantage of their benefits. The dependent care account offers similar features — including online claims submission to speed up reimbursement.
Features of the FSA include:
- Easy account maintenance
- Optional direct payment to medical providers
- No-cost debit cards
Refer to IRS Publication 502 for a complete list of qualified medical and dental expenses. Refer to IRS Publication 503 for more information about dependents and dependent care FSAs.
Contact us
For more information about spending account solutions, contact your IA account executive, broker, or consultant.
1 Tax savings are at the federal level. State tax laws vary.
2 Invested funds are not FDIC-insured, may lose value. The balance in the HSA Investment Account is subject to investment risks, including fluctuations in value and the possible loss of the principal amount invested.
3 Because an HRA offers employer-owned funds, there is greater flexibility in what expenses are covered – provided they are considered qualified medical and dental expenses. Refer to IRS Publication 502 for a complete list of qualified medical and dental expenses.