PLANSPONSOR - August/September 2019 - 61

the new year. In 2014, the IRS modified
the FSA use-it-or-lose-it rule to allow up
to $500 of unused amounts to be paid or
reimbursed to plan participants for qualified
medical expenses incurred over the
next plan year, provided the plan does not
also incorporate the grace period rule.
FSA savings stay with the employer,
which may, alternatively, transfer them
to an FSA provider. If an account holder
changes jobs, he will lose any unspent
FSA dollars.
Christenson says, while employees
try each year to make their best estimate
of what they will need to spend, guessing
well is rare. More often, they over- or
under-estimate. The grace period and FSA
rollover rules help with some of the angst
employees have about guessing, he says.
Another evolution that has made
FSAs easier for employees, sources
note, is the use of debit cards that recognize
FSA-eligible expenses. Previously,
employees had to submit forms and
receipts for reimbursement.
HSAs
Two key characteristics of HSAs are that
they need to be paired with a high-deductible
health plan (HDHP) and they offer
triple tax benefits-tax-free contributions,
tax-free growth on balances and tax-free
withdrawals for qualified health expenses.
Notable exceptions are that California and
New Jersey make no allowance, at the state
level, for tax-free contributions, and Hawaii
does not permit HDHP plans.
For calendar year 2020, the IRS
defines an HDHP as a health plan with
an annual deductible not less than $1,400
for self-only coverage or $2,800 for
family coverage; the annual out-of-pocket
expenses-deductibles, co-payments and
other amounts, excluding premiums-
should not exceed $6,900 for self-only
coverage or $13,800 for family coverage.
A common way for employees to
contribute to an HSA is by payroll deduction,
as with a health FSA, but they may
also add money on their own, Wojcik
says. Employers may contribute to their
employees' HSAs as well. For calendar
year 2020, the IRS limit for contributions-meaning
all, combined-for an
individual with HDHP self-only coverage
is $3,550 and for an individual with family
coverage is $7,100.
Until age 65, withdrawals to pay for
anything but a qualified medical expense
will be taxable and incur a penalty. After
65, nonqualified withdrawals may be
made; they will be taxed but not penalized.
There is no use-it-or-lose-it rule for
HSAs. If an employee has more saved
than he has used or wants to spend, his
account can continue to grow each year,
Christenson says. Some HSA providers
let employees invest their assets for even
more growth. And an individual may save
medical receipts and submit them for reimbursement
later-the IRS has no specific
time limit on this, he says.
HSAs are also portable, notes Wojcik.
They are owned by the individual, so the
account goes with him if he changes
employers. He may continue to contribute
as long as he is also covered by a qualifying
HDHP. If not thus covered, he may still use
the funds for qualified medical expenses.
An employee may go to a bank or local
credit union to roll over his HSA assets,
Christenson says.
Most, if not all, HSAs also now offer
the convenience of a debit card, eliminating
the requirement to submit receipts
for reimbursement, Wojcik says.
Employers may offer both health FSAs
and HSAs to employees, but the health FSA
must then be limited to covering vision
and/or dental-not medical-expenses.
HRAs
Whereas HSAs provide flexibility for
employees, HRAs do that for employers,
Wojcik says. " Basically, an HRA is a
promise by an employer to pay qualified
medical expenses, including premiums
for qualified health insurance policies.
Employers don't even need to have a
funded account-they can pay as they go.
They don't have to let an employee take
the account when he leaves, but they can.
HSAs are
also portable.
They are
owned by the
individual, so
the account
goes with him
if he changes
employers.
Employers can also limit what expenses
their HRAs will cover, " he explains.
Employers predetermine the amount
they will contribute, which they then
formalize in a health plan document,
says Christenson. " The employer gets
a tax deduction for contributions. The
employee gets no tax deduction, just
access to funds. "
Employers may use providers such as
a health insurer or a health spending and
savings account provider, which offers
FSAs, HSAs and HRAs, to administer an
HRA, but it is not necessary, Wojcik says.
He adds that the U.S. Departments
of Health and Human Services (HHS),
Labor (DOL) and the Treasury issued
a new final rule about HRAs this June.
This enables individual coverage HRAs
to give workers tax-preferred funds to
purchase health insurance in the individual
market. " Previously, HRAs had
to be tied to a health plan, and the only
employee group for which employers
could offer a free-standing HRA was
retirees, " Wojcik says.
According to Christenson, many
employees read the materials they are
given and still are unclear as to what type of
account they have for health care spending.
The more that employers know about those
three types, the better they can educate
employees. -Rebecca Moore
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