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Alternative Funding Options like HRA, HSA, FSA What Are They?

By May 13, 2011February 19th, 2015No Comments

Alternative Funding Arrangements

What are Flexible Spending Accounts (FSAs)?

An FSA is an account that an employee sets up with HR Knowledge (similar to a savings account). It enables them to deduct money out of their payroll on a pretax basis and directly deposit these funds into an account with our FSA Partner. These funds can later be withdrawn from this account on a tax free basis to pay for eligible medical, dental, vision, over the counter, prescription, and dependent care expenses for themselves, their spouse, and eligible dependent children. They are a great way to save taxes and reduce your out of pocket expenses!

How Do FSA’S Work?

Before the effective date of your FSA plan year (Decided by the employer), an employee will calculate how much money they think they and their dependents will spend during the plan year on your out of pocket expenses for medical, dental, vision, over the counter, prescription, and dependent care expenses. This annual number is divided by the amount of payrolls during the plan year and this amount will be deducted from the employee’s payroll each period and deposited into their FSA. This money comes out before they pay Federal Tax, FICA Tax, and State Tax. After you add up their tax savings with their money in this account, they effectively have increased their take home pay. They will have the opportunity to change their election each plan year and also if they have a qualifying event; which includes marriage, divorce, death, or birth in their immediate family. If they have a qualifying event, they can increase or decrease your annual election within a 30-day period following the event.

What Are Eligible Expenses?

Eligible Healthcare Expenses include, but are not limited to:  Deductibles, Prescriptions, Dental Expenses, Vision Expenses, Chiropractic Expenses, Coinsurance Amounts, Hearing Expenses, Birth Control, Mental Health Counseling, Acupuncture

Eligible Daycare Expenses include, but are not limited to:  Daycare Expenses, Day Camp, Pre-School, Baby Sitting (With Restrictions), After School Programs

Are There Legal Requirements to Having FSA?

Yes, a company must follow the regulations set forth by the Federal Government in order to establish and maintain a Section 125 POP. These requirements include:

  • Legal Documents
  • Corporate Resolution
  • 5500 Tax Filing
  • Summary Plan Descriptions (SPD’S)
  • Employee Enrollment
  • Discrimination Testing

How Much Will The Company Save?

You can calculate the savings to the company by applying the same principles used for POP’S. Just add-up all the annual elections for these accounts and multiple by the FICA savings (7.65%)

To learn more about FSA plans, contact us

Health Reimbursement Arrangement (HRA)

What is a Healthcare Reimbursement Arrangement?

A HRA is an arrangement that employers set up and completely funds to cover certain out of pocket, co-pays, co-insurance, and/or deductible expenses employees may incur associated with their health insurance plan. It is an arrangement that employers promise to pay certain expenses on behalf of the employee to help reduce their cost of medical expenses, for themselves, their spouse, and dependent children. This arrangement is 100% paid for, funded, and designed by the employer for the employee’s benefit.

Why Would A Company Consider A HRA?

Companies consider implementing HRA’S as a way to reduce the cost of health insurance premiums. By increasing the deductible of the health insurance plan, the premium to purchase the coverage can be reduced considerably.

How Does A HRA Work?

HRA’s are designed to work in conjunction with a high co-pay, high co-insurance, or high deductible health insurance plan offered by the employer. Traditional health insurance plans have low co-pays, low co-insurance, and/or low deductibles, but because the health insurance rates and medical expenses continue to rise, employers are deciding to design and implement HRA’s to reduce employees’ cost. By increasing the co-pay, co-insurance, and/or deductible, the cost of your health insurance premiums will decrease, but an employee’s out of pocket costs may increase. This is why employers implement a HRA to help employees reduce their potential out of pocket increase while still providing them with a health insurance policy that offers complete coverage. HRA’s are effective in managing employees’ expenses, but they will be required to submit receipts or understand how to get reimbursed for an eligible expense covered by the HRA.

How Does The Deductible Get Paid?

There are several ways an employee can get reimbursed from the HRA depending on the options an employer allows. Here are examples of how to get reimbursed:

  • An employee can submit a claim online, mail it, fax it, or drop the claim off to us along with the proper documentation necessary to prove they have incurred the expense. Proper documentation may consist of a letter that they will receive from the health insurance company. This letter is called a letter of explanation of benefits (EOB). In some cases, a receipt from the pharmacy may be all they need to submit. The proper documentation will be outlined by the employer.
  • An employer may authorize the use of claims submission through the use of a VISA Card. If an employer authorizes this form of reimbursement, an employee will receive a VISA Card after they are enrolled. To use the VISA Card, an employee simply presents it at an eligible location for an eligible expense. They may only use this card for eligible expenses and they must keep receipts, they may be contacted to verify the expense.

To learn more about HRA plans, contact us

Health Savings Account (HSA)

A health savings account (HSA) paired with an eligible high-deductible health plan helps individuals and families plan, save and pay for health care.

HSAs offer triple tax savings:

  • The money you put in is tax deductible, up to a legal limit.
  • Your savings grow tax free.
    Any money you take out to pay for qualified medical expenses is income-tax free.

An HSA is like no other savings vehicle now available to taxpayers. The money in your HSA is always yours — there is no “use it or lose it” rule. All amounts in your HSA belong to you, and unspent balances in accounts remain in your account until spent. Your account is portable, too, meaning your money stays put even if you:

  • Change jobs
  • Change medical coverage
  • Become unemployed
  • Move to another state
  • Get married or divorced

An HSA works with your health plan to help you plan, save and pay for health care. This section covers the benefits of HSAs, who’s eligible to open and contribute to an account, what high-deductible health plans are and some related health insurance terms.

With an HSA, you are in charge. You decide:

  • How much you will contribute to your account
  • When you want to use your savings to pay for or reimburse yourself for qualified medical expenses
  • What bank will administer your account
  • Whether or not to invest some of your savings in mutual funds for greater potential long-term growth

To learn more about HSA plans, contact us

Premium Only Plan

What is a Premium only Plan (POP)?

A Premium Offset Plan is a provision under the Internal Revenue Code Section 125 that enables employers to allow their employees to have certain premiums that they have to pay out of their paycheck, to be taken out before the employee pays tax. These premiums would be taken out before the Federal tax, FICA tax, and the State tax. The POP also allows the employers to save on the matching FICA that they would have had to contribute on this amount.

What Premiums Qualify?

Health, Prescription, Dental, Vision, Disability, Employee Group Term Life (up to $50,000), Cancer, Medicare Supplement, Hospital Indemnity and Accident

Are There Legal Requirements to Having a POP?

Yes, a company must follow the regulations set forth by the Federal Government in order to establish and maintain a Section 125 POP. These requirements include:

  • Legal Documents
  • Corporate Resolution
  • 5500 Tax Filing
  • Summary Plan Descriptions (SPD’S)
  • Employee Enrollment
  • Discrimination Testing

How Much Will The Company Save?

It is rather simple to estimate how much a company will save be implementing a POP. In most cases, the tax savings for the employer well exceeds the cost to have such a plan.

To learn more about POP plans, contact us

Worker’s Compensation

Through our payroll partner, we can establish a Worker’s compensation “Pay-as-you-go” program. This will calculate the worker’s compensation premiums in-line with payroll. This provides two key benefits to your company:

  • There is no Worker’s compensation audit each year
  • Better cash flow, as premiums are paid over the course of the year, rather than big payments up front.

To learn more about Worker’s comp “Pay as you go”, contact us