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Comparison of HSAs to HRAs and FSAs

Wednesday, November 11, 2015
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This table details ACA changes to what is considered a qualified medical expense for reimbursement purposes from FSAs, HSAs, HRAs and Archer MSAs.

 

 

HSAs

HRAs

FSAs

Who owns the account?

Individual or employee

Employer

Employer

Eligible Individual

Individuals and families covered by a qualified HDHP and no other health plan that covers the same benefits. Individuals are not eligible if they can be claimed as a dependent on another person’s tax return.

Current and former employees whose employers offer such a plan.

Current and former employees whose employers offer such a plan.

Eligibility of Spouse or Dependents

Spouses and dependents are eligible to use employee’s account.

Spouses and dependents are eligible to use employee’s account.

Spouses and dependents are eligible to use employee’s account.

Who may fund the account?

Employer or employee, can both be in the same year.

Employee can contribute pre-tax dollars through a Section 125 plan.

Employer*

Employer or employee*

Typically the employee contributes pre-tax dollars through a Section 125 plan.

What plans may be offered with the tax-advantaged account?

An HDHP as follows:

Minimum Deductible:

2015:

$1,300 individual (also $1,300 for 2016)

$2,600 family (also $2,600 for 2016)

Out-of-pocket Maximum:

2015:

$6,4350 individual (increase to $6,550 for 2016)

$12,900 family (increase to $13,100 for 2016)

Effective for 2014 plan years, an employer must offer a health plan and the HRA must be considered integrated with group health plan coverage. Stand-alone HRAs are not permitted unless they are limited to excepted benefits or fall under an exemption to the Affordable Care Act (ACA).

Effective for 2014 plan years, health FSAs must qualify as excepted benefits to satisfy ACA reforms. To qualify as an excepted benefit, the FSA must meet a maximum benefit requirement and other group health plan coverage must be offered by the employer.

Is there a limit on the amount that can be contributed per year?

Yes

2015:

$3,350 individual (also $3,350 for 2016)

$6,650 family (increase to $6,750 for 2016)

Catch-up contributions of $1,000 per year are permitted for individuals who are age 55 by the end of the tax year.

No, there is no IRS prescribed limit.

Effective for taxable years beginning after Dec. 31, 2012, employees may not elect to contribute more than $2,500 per year to a health FSA offered through a cafeteria plan. For 2014, the amount remained at $2,500. For the 2015 and 2016 taxable years, however, the annual dollar limitation on employee salary reduction contributions to a health FSA is $2,550.   

Can unused funds be rolled over from year to year?

Yes

Yes

No, with two exceptions. If the FSA allows, unused amounts may be used for expenses incurred during a grace period of 2 ½ months after the end of plan year. Also, if the FSA does not incorporate a grace period, it may allow employees to carry over up to $500 in unused funds into the next plan year.

What expenses are eligible for reimbursement?

Section 213(d) medical expenses, including:

-COBRA premiums

-QLTC premiums

-Health premiums while receiving unemployment benefits

-If Medicare eligible due to age, health insurance premiums except medical supplement policies

Effective Dec. 31, 2010, OTC medicine or drug expenses cannot be reimbursed unless they are prescribed or are insulin.

Section 213(d) medical expenses, including health insurance premiums for current employees, retirees and qualified beneficiaries, and QLTC premiums.

Employer can generally define “eligible medical expenses” to be more restrictive than the IRS guidelines.

Effective Dec. 31, 2010, OTC medicine or drug expenses cannot be reimbursed unless they are prescribed or are insulin.

Section 213(d) medical expenses.

Effective Dec. 31, 2010, OTC medicine or drug expenses cannot be reimbursed unless they are prescribed or are insulin.

Expenses for insurance premiums are not reimbursable.

Employer can generally define “eligible medical expenses” to be more restrictive than the IRS guidelines.

Must claims submitted for reimbursement be substantiated?

No

Yes

Yes

May account reimburse non-medical expenses?

Yes, but taxed as income and 20% penalty (no penalty if distributed after death, disability or age 65).

No

No

Is interest earned on the tax-advantaged account?

Yes, accrues tax-free.

Yes, paid to the employer.

No

Federal tax treatment of employee contributions

Tax-deductible for individual, even if he or she does not itemize, provided funds are used for eligible expenses. (Note: Some states do not follow federal tax law for state purposes.) If an employee contributes to his or her HSA through salary reduction, the contributions are considered to be made by the employer and are not subject to FICA and other employment taxes.

n/a

If an employee contributes to an FSA through salary reductions under a cafeteria plan, the contributions are tax-free and are not subject to FICA and other employment taxes.

State tax treatment of employee contributions

State laws may vary

n/a

State laws may vary

Federal tax treatment of employer contributions

Employers get expense deductions for payments. Employer contributions are generally excludable from employee’s gross income.

Employers get expense deductions for payments. Employer contributions are generally excludable from employee’s gross income.

Employers get expense deductions for payments. Employer contributions are generally excludable from employee’s gross income.

Table updated 10/22/2015.

Material posted on this website is for informational purposes only and does not constitute a legal opinion or medical advice. Contact your legal representative or medical professional for information specific to your legal or medical needs.

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