Health Reimbursement Arrangements (HRA)

A Health Reimbursement Arrangement (HRA) is an instrument offered in conjunction with a high-deductible health plan, and is funded by the employer for each participating employee. It pays for eligible health care expenses typically covered under the medical plan.

• HRAs, employer-funded accounts that employees can draw upon to pay qualified medical expenses
• Usually offered as part of consumer-directed health plans (CDHPs)
• HRA-based health plans usually have a high deductible, and low premiums
• Members of an HRA plan who do not use all of their fund or account in one year usually loose the benefit dollars as they are maintained and controlled by the employer

Health Savings Account (HSA)

“HSA" stands for Health Savings Account. HSAs allow consumers to pay for qualified medical expenses with pre-tax dollars—meaning income-tax free—and save for retirement on a tax-deferred basis.

Health Savings Accounts (HSAs) are available to any person in the U.S. under the age of 65 who has an HSA-eligible health insurance plan. HSAs are similar to individual retirement accounts(IRAs), but even better.

• Pre-tax money is deposited each year into an HSA and can be easily withdrawn at any time with no penalty or taxes to pay for qualified medical expenses.
• Any HSA funds not used each year remain in the account, and earn interest tax-free to supplement medical expenses at any time in the future.
• Like an IRA, the account belongs to you, not your employer. But unlike an IRA, your employer CAN contribute to your HSA.

You may save money by:

• Deducting 100% of your HSA contributions from your taxable income
• Having the money in your HSA accrue interest and/or gains on a tax-free basis
• Paying no penalties or taxes when you use your HSA to pay for qualified medical expenses.
• Having a high-deductible HAS-eligible health insurance plan, which typically has a lower premium than a plan with a lower deductible

How much can I contribute to my HSA?

Maximum yearly contributions(and associated tax deduction)are:

• $3,000 for individuals
• $6,000 for families

You do not have to contribute the maximum each year, although some HSAs require a small minimum monthly contribution. 

How can I use my HSA funds?

• Typically an HSA provides you with a checkbook or debit card.  When you pay for qualified medical expenses, you’ll pay with the debit card or check.
• You do not need to get approval from the HSA administrator when you use funds in your account.
• You do not need to submit receipts to the HSA administrator, although you should save them just as you keep receipts for other items that are deducted from your taxes.
• You must establish the HSA before you incur medical expenses otherwise the expenses will not qualify.

How do I save on taxes with an HSA?

• At the end of each year, you will be sent a statement showing the amount you contributed to your HSA. You can deduct this amount, provided it is less than or equal to the maximum allowable contribution.
• Much like an IRA, HSA deductions are "above-the-line" and thus can be taken even if you don’t itemize.
• If you’re self-employed, in addition to deducting your HSA contributions, you may be able to deduct 100% of your health insurance premiums, provided that:
• You are not eligible to participate in a subsidized health plan offered by an employer or your spouse's employer.
• The deduction does NOT exceed the amount of net income from your business.

Flexible Spending Account (FSA)

What are they and how do they work?

• Employees contribute a certain amount out of their paychecks to their account -- usually up to $5,000 a year.
• The sum isn't taxed, and is exempt from Social Security and most state taxes.
• When the employee is billed for a qualified expense not covered by his health-insurance plan, he submits a receipt to the administrator of his FSA and is reimbursed.
• Any money remaining in the FSA at the end of the plan's calendar year goes back to the company -- a major drawback.

The plan works best when employees can estimate the cost of upcoming health-care expenses and tailor their contribution accordingly.