This employer has a High-Deductible Health Plan (HDHP) in place and wants to help employees cover any qualified expenses, including those related to meeting their deductible obligations before their insurance coverage kicks in.
The deductible obligation for this group of employees is $1,000 for single coverage and $2,000 for family coverage.
The employer has chosen to fund a health care account in the following amount:
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$500 for single coverage
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$1,000 for family coverage
These dollar amounts will help each employee pay the following expenses:
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Prescribed medicine expenses
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Over-the-counter medicines
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Medical expenses
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Dental and vision expenses
This employer has decided that the full amount of the funds they are allocating to each employee will be available on the first day of the plan year. And, the employer has decided that any unused HRA funds will rollover from year-to-year.
The employer is also providing employees the opportunity to make contributions into a separate health care account so they can pay the remainder of their health plan deductible, or all other out-of-pocket expenses with pre-tax payroll dollars. Employees save federal, state (and where applicable) local taxes on their contributions into this account, and the employer saves payroll taxes on these dollars.
The employer has set an annual contribution limit for employee contributions at $5,000 with the employee’s full annual contribution election available to the employee on the first day of the plan year.
As well, the employer has set up the FSA plan so that the employee has until 75 days after the plan year end to use any remaining balance in their account.
In this scenario, the employer is funding a Health Reimbursement Account (HRA) to cover any qualified expenses, including a portion of their health plan deductible. The employee is contributing pre-tax payroll dollars each pay period to a separate Flexible Spending Account (FSA), to cover all out-of-pocket expenses not covered by their HRA funds.
The employee is not taxed on the funds they use in their HRA, or the dollars they contribute or use in their FSA. The employer does not pay FICA taxes on the HRA funds or the contributions the employee makes to the FSA.
The employer is helping employees take the sting out of the increased health care expenses they are obligated to pay and everyone is saving money they would have otherwise had paid to Uncle Sam.