Knowledge

Have questions about our HRA, HSA or FSA? Check out these FAQ's:

What is an HRA?
An HRA is an individual health reimbursement arrangement that employers can establish to pay employees’ medical expenses.
Who is eligible to set up and contribute to an HRA?
HRAs must be set up by an employer on behalf of its employees (self-employed individuals are not eligible for an HRA), and only the employer can contribute to an HRA.
Who controls the use of funds in HRAs?
Employers decide how much money to put in an HRA, and employees can withdraw HRA funds for expenses allowed under the employer’s HRA plan documents. Employers can determine whether employees have access to the entire annual HRA contribution at any time during the year, or whether they can access only a portion of the funds at any given time.
How much can be contributed to an HRA?
There is no limit on the amount of money an employer may contribute to an HRA.
What are the federal tax benefits of an HRA?
Employer contributions to an HRA are not treated as taxable income to the employee, and employees can spend the funds tax-free. In addition, employers are entitled to deduct the amount of their contribution. If they fund the account with hard dollars, they can take an immediate deduction. However, if the account is funded on a “notional” basis like a line of credit, the employer can take the deduction only when the amounts are actually paid out.
Can HRAs be offered in conjunction with a health insurance plan?
HRAs often are established with a high-deductible health plan for employees. However, they can be paired with any type of health plan or used as a stand-alone account. In addition, HRAs can be offered in conjunction with a health flexible spending arrangement. Employers decide what other types of products to offer with the HRA.
What kinds of expenses can be paid with HRAs?
The IRS allows HRA funds to be used for any item that qualifies as a medical expense under the Internal Revenue Code (except long-term care services). However, it is up to employers to determine whether employees can use HRAs for any of these items or only for medical expenses covered under the employer’s health benefit plan. If the employer offers an HRA in conjunction with an HDHP, the employer can decide whether to cover preventive care without requiring employees to meet the HDHP deductible.
Can HRA funds be used to pay health insurance premiums?
IRS rules allow use of HRA funds for reimbursement of employer sponsored health insurance premiums, long-term care coverage, and qualified medical expenses not covered under another health plan, but it is up to individual employers to decide whether their employees can use the funds for these purposes.
Can HRA funds be used to pay health expenses incurred by a spouse or dependent?
Under IRS rules, employers have the option of allowing employees to use HRAs for expenses of spouses and dependents of current and former employees.
What happens if there is money left in an HRA at the end of a year?
IRS rules allow employers to determine whether employees can carry over all or a portion of unused HRA funds from year to year. Employers are not allowed to “refund” any part of an HRA balance to employees.
Can employees take HRAs with them when they retire or change jobs?
IRS rules allow employers to specify in their HRA plan terms whether HRA balances will be forfeited if an employee leaves the job or changes health plans. However, former employees who buy COBRA continuation coverage can retain access to the HRA and any health plan offered with it. As long as former employees pay COBRA premiums during the COBRA coverage period, they are entitled not only to unused balances from the HRA but also to the same annual employer contribution to the HRA as that provided to current active employees.
What is a health FSA?
Health flexible spending arrangements are benefit plans set up by employers that allow employees to set aside pre-tax money on an annual basis to pay for qualified medical expenses (as defined by the IRS) incurred during that year.
Who is eligible to set up and contribute to a health FSA?
Health flexible spending arrangements can be set up only by employers (self-employed individuals cannot establish FSAs). Employees contribute to health FSAs by having money withheld from their paychecks on a pre-tax basis, and employers have the option of contributing.
What are the federal tax benefits of health FSAs?
Employees do not pay federal income tax on the amount of salary contributed to an FSA or on the amount an employer may contribute. Pre-tax salary reduction for FSAs reduces the wages on which Social Security and Medicare taxes are paid. In addition, employees do not pay taxes on funds withdrawn from FSAs for qualified medical expenses.
How much money can be contributed to a health FSA?
Employees can contribute up to $2,600 in the health FSAs. Each year, employees designate the amount of money they will contribute to the account in the following year.
Who controls the use of funds in health FSAs?
Employees choosing health FSAs have a portion of their FSA contribution withheld from their paycheck each pay period. IRS rules specify that at any point during the year, regardless of how much has been withheld from their paychecks, employees can access the entire amount designated for the year.
Can employees change the amount of their health FSA contribution during the year?
In general, no. Employees can only contribute the amount they originally designated for the year. However, the amount of an annual health FSA contribution can be changed or revoked if there is a change in family status (e.g., birth or adoption of a child) or in employment status, as specified in the employer’s FSA plan documents.
Can health FSAs be offered in conjunction with a health insurance plan?
Yes. Health FSAs can be offered in conjunction with any type of health insurance plan or other employer-provided benefits, or they can be offered on a standalone basis. As explained previously, health FSAs generally cannot be established with HSAs.
What kinds of expenses can be paid with health FSAs?
Employees can use health FSA funds for qualified medical expenses, including preventive care, as defined by the IRS and specified in the employer’s FSA plan documents, as long as those expenses are not otherwise covered by health insurance.
Can health FSA funds be used to pay health insurance premiums?
No. Health FSA funds cannot be used for:

  • Health insurance premiums;
  • Long-term care coverage or expenses; or
  • Amounts covered under another health plan.
Can health FSA funds be used to pay health expenses incurred by a spouse or dependent?
Yes. Health FSA funds may be used for qualified medical expenses of a spouse or dependent.
What happens if there is money left in a health FSA at the end of the year?
Health FSAs are subject to a use-it-or-lose it rule, which recently was modified by the Treasury Department. Until recently, the rule specified that any funds that the employee had not spent by the end of the plan year would be forfeited and returned to the employer. However, in May 2005, the Treasury Department modified the rule, allowing employers to give employees a two-and-a-half month grace period immediately following the end of a plan year to use up funds for the year. Thus if the plan year ends December 31, employers may give employees until March 15 to use their health FSA funds from the previous year.
Can employees take health FSAs with them when they retire or change jobs?
No, and employers are not allowed to refund health FSA health balances to employees when they leave. Under certain limited circumstances, health FSAs may be subject to COBRA requirements.
What is an HSA?
A health savings account is a new way of saving money to pay for current and future medical expenses on a tax-free basis.
Who is eligible to set up an HSA?
To set up and contribute to an HSA, an individual must:

  • Be covered by a high-deductible health plan that meets federal requirements.
  • Not have other health insurance. (Individuals with certain limited benefit policies such as accident-only, dental, vision, workers’ compensation, disability, or long-term care coverage may still be eligible for an HSA.)
  • Not be enrolled in Medicare. Medicare beneficiaries cannot contribute to an HSA. They may, however, spend money contributed to an HSA prior to their enrollment in Medicare.
  • Not be claimed as a dependent on someone else’s tax return.
What are the annual HSA limits for 2017?
A health plan with: An annual deductible of at least: $1,300 for self-only coverage.

$2,600 for family coverage.

Limits on annual out-of-pocket expenses (deductibles, coinsurance, and copayments), which may not exceed:
$6,550 for self-only coverage.
$13,100 for family coverage.

What are the federal tax benefits of HSAs?
Individuals can deduct from their federal income taxes the amount of their HSA contributions, whether or not they itemize. Employer contributions to an HSA on an individual’s behalf are not counted as taxable income. If someone else makes an HSA contribution on an individual’s behalf, only the individual can deduct the contribution.

Individuals can withdraw funds from an HSA tax-free to pay qualified medical expenses.

All earnings on HSAs are tax-free.

Employer contributions are not subject to withholding for purposes of the Federal Insurance Contributions Act (FICA), Federal Unemployment Tax Act (FUTA), or the Railroad Retirement Tax Act.

Does preventive care count toward the deductible of the high-deductible health plan associated with an HSA?
The IRS has ruled that a high-deductible health plan may cover certain types of preventive care without a deductible or with a lower deductible than the annual deductible applicable to all other services. According to IRS guidance, the types of services that may be considered preventive care include:

  • Routine prenatal and well-child care.
  • Immunizations for children and adults.
  • Periodic health evaluations, including tests and diagnostic procedures ordered with routine examinations such as annual physicals.
  • Smoking cessation programs.
  • Obesity weight-loss programs.
  • Screening services (e.g., mammography, Pap testing, screening for glaucoma, tuberculosis).
  • Limited categories of medications, including:
  1. Medications used as part of procedures to provide any of the preventive services listed above;
  2. Medications to prevent a disease or condition when a person has risk factors but no symptoms of the disease or condition (e.g., cholesterol-lowering medication to help prevent heart disease for people with high cholesterol); and
  3. Medication to prevent recurrence of a disease from which a person has recovered (e.g., ACE inhibitors by individuals who previously had a heart attack or stroke);
  4. Treatment that is incidental or ancillary to a preventive care service or screening, where it would be unreasonable or impractical to perform another procedure to treat the condition (e.g., removal of polyps during a diagnostic colonoscopy).

The exceptions for preventive care do not include any service, benefit, or medication to treat an existing illness, injury, or condition.

Who can contribute to an HSA?
  • An employee.
  • An employer on behalf of an employee.
  • A self-employed individual.
  • Individuals without job-based health insurance.
  • Any person, such as a family member, on behalf of an eligible individual.
How much can be contributed to an HSA?
Each year, total contributions to an HSA cannot exceed the deductible of the high-deductible health plan, but in any event not more than $3,400 annually for individuals and $6,750 annually for families (adjusted annually for inflation). Individuals between the ages of 55 and 65 can make additional “catch-up” annual contributions of $1,000 (adjusted annually for inflation). Individuals are responsible for ensuring that their annual HSA contributions do not exceed the maximum allowed by law. Employers can arrange for employees to contribute to HSAs through salary reduction. Employers contributing to HSAs are not required to make their entire contribution available at the beginning of the year. Once an employer contributes to an HSA, the funds become the employee’s property.

Employers are not allowed to take back unused HSA contributions.

Who controls the use of funds in HSAs?
The individual controls use of funds in HSAs and can decide when and how much to contribute (up to the allowable maximums). Individuals also can decide which custodian or trustee will hold the account, whether to invest any of the money in the account, and which investments to make.
What kinds of expenses can be paid with HSAs?
Individuals can withdraw HSA funds tax-free to pay qualified medical expenses, as defined by the IRS. These include, but are not limited to:

  • Doctors’ office visits
  • Hospital care
  • Dental care
  • Vision care
  • Prescription drugs
  • Over-the-counter medications
  • Copayments
  • Deductibles
  • Coinsurance

Visit this link for a list of qualified medical expenses as defined by the IRS:

Can HSA funds be used to pay health insurance premiums?
Individuals can use HSAs to pay for the following types of health coverage:

  • COBRA continuation coverage
  • Health coverage purchased while an individual is receiving unemployment compensation
  • Qualified long-term care insurance
  • When age 65 or older, premiums for any health insurance except Medicare supplemental policies (also known as Medigap)
What happens if HSA funds are used for items other than qualified medical expenses or premiums?
Any amounts from an HSA that are used for items other than qualified medical expenses or premiums are subject to federal income tax plus a 10% excise tax. The 10% tax is not paid if the individual is age 65 or older or if the distribution from the account is made after the death or disability of the individual. However, the amount still is considered income.
Can HSA funds be used to pay health expenses incurred by a spouse or a dependent?
Yes, HSA funds can be withdrawn tax-free for the qualified medical expenses for a spouse or dependent, even if they are not covered by the high-deductible health plan.
What happens if there is money left in the HSA at the end of the year?
  • Individuals can keep unused funds in their HSA accounts from one year to the next
  • Individuals can use HSA funds to pay qualified expenses from a previous year, as long as they were incurred after the HSA was established
Can employees take HSAs with them when they retire or change jobs?
Yes. Individuals can take HSA funds with them when they retire or change jobs and can designate a beneficiary to receive the funds upon their death.
Can HSAs be used in conjunction with FSAs or HRAs?
In general, no. During any time that an employer or employee is contributing to an HSA, the individual cannot have any health coverage other than a high-deductible health plan. Limited exceptions are allowed:

  • Because individuals with HSAs can have limited health benefits such as dental and vision care, an employee with a limited FSA or HRA that covers only those expenses would still be eligible for an HSA.
  • Individuals with HSAs can have FSAs or HRAs that pay for medical expenses only after the HDHP deductible has been met.
  • Active employees can contribute to HSAs while covered by an HRA that pays only post-retirement medical expenses.
  • An employee with HRA coverage can make HSA contributions if he or she suspends the HRA coverage.