This employer has a high deductible health plan (HDHP) in place. The deductible obligation for this group of employees is:
-
$1,000 for single coverage
-
$2,000 for family coverage
This employer has chosen not to fund a healthcare account to help employees cover expenses their health plan does not cover. However, the employer would like employees to be able to make contributions into a healthcare account so they can pay any out-of-pocket expenses with pre-tax payroll dollars, and they would like the employee’s full annual election into this account to be available on the first day of the plan year.
This employer has set an annual contribution limit for employee contributions to their healthcare account at $2,000. As well, the employer has set up the plan so that the employee has 75 days after the plan year end to use any remaining balance in their account.
In this scenario the employee is contributing pre-tax payroll dollars each pay period to a Flexible Spending Account (FSA), to cover out-of-pocket expenses not covered by their health plan.
-
Prescribed medicine expenses
-
Over-the-counter medicines
-
Medical expenses
-
Dental and vision expenses
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 employee is not taxed on the dollars they use in their FSA.
The employer is helping employees take the sting out of the increased healthcare expenses they are obligated to pay and everyone is saving money they would have otherwise had paid to Uncle Sam.