A few of my clients recently asked me, “What’s a Health Reimbursement Account?” and “Should I have one?”
At this point you’re probably starting to get sick of all these acronyms, H.S.A, F.S.A, H.R.A etc…
A Health Reimbursement Account is an account maintained by an employer that reimburses employees for qualified medical expenses.
Your probably saying to yourself, “Isn’t that what an Health Savings Account does?”.
Yes & No
There are some actual differences between the two, the first being how their funded.
Health Reimbursement Accounts don’t need to be funded in advance, but Health Savings Accounts do. An employer can set a maximum amount they will reimburse their employees every year (Maximum for families is $6,150, & Individuals is $3,050 as of 2010) and pay the benefits as they come in (So there not forced to put aside funds in advance). Eligible reimbursements for example would be co-pays, co-insurance, deductibles, etc.
So in the case of a Health Reimbursement Account, the business gets the deduction and the employee gets the benefit. Where as in a Health Savings Account the employee has to make the contribution but they get the deduction.
The next difference is ownership; since the accounts don’t need to be pre-funded they are not owned by the employee. So, if an employee leaves a company he will no longer have access to their H.R.A account. This should not pose a problem because the account is not funded anyway. Where as in a Health Savings Account, the employee has set aside their own money pretax, so they own the account and they can take it with them wherever they go.
So, when comparing the two there is significant upside to both accounts:
H.R.A’s offer more Contribution Flexibility, Tax Deductions to the Business, and they allow the employee to not have to make any contributions.
H.S.A’s offer a Tax Deduction to the employee, Portability (They can take it with them if they leave their employer) but they must be funded by the employee.
Either way, both accounts help employees to pay for some of the expenses they’ll incur that are not covered by their medical plan. It simply depends on what option the employer decides to offer there employees and how its structured.
If you have any questions you can reach me at 631-338-9917.
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