At some points, many small businesses will need to reimburse their employees tax free for healthcare expenses. The good news is that there are four ways in which this can be done. These reimbursement option plans will help your business meet its objectives, but it is important to understand how each plan works and the differences between them. These four plans are healthcare reimbursement plans, health savings accounts, flexible spending accounts and health reimbursement arrangements.
Healthcare Reimbursement Plans
The HRP is a premium healthcare reimbursement solution. This means that it is controlled and funded through the company, and workers can reimburse themselves through their allowances for family or individual insurance. HRPs are considered the basis for defined contribution medical benefits, and can be structured in compliance with new Market Reforms. Features which are associated with this plan include no yearly contribution requirements and preventive care.
Health Savings Accounts
The HSA is a type of individual account which is under the ownership of an employee that wants reimbursement for medical expenses which are eligible or payment which is tax free. HSAs can be likened to IRAs since they can be set up by individuals who can then make contributions towards them in the manner they choose.
Some important features which are associated with HSAs include the inclusion of unreimbursed healthcare (which is determined by the IRS) as well as insurance premiums which are specifically for individuals who are unemployed. Employees need to have health plans which are high deductible to be eligible for HSAs and anyone can contribute to them. These plans also include yearly contribution limits which are $6,750 for families and $3,350 for those who are single.
Flexible Spending Accounts
FSAs give employees the ability to save for qualified healthcare expenses tax free. This can be done within a single year, and flexible spending accounts can be matched with any medical plan or they can be used unilaterally. The funds will expire if they are not used by the year-end for the plan, and some specific features which are associated with FSAs include a maximum yearly contribution limit of $2,500, they may be funded by the company or employees, and out of pocket healthcare costs are included for medical expenses that are eligible.
Health Reimbursement Arrangements
The HRA is a medical plan which is funded by the employer. It reimburses employees for healthcare expenses which are made out of pocket, and it can be used in two primary ways. The first option is for the employer to provide an HRA which is standalone that workers can utilize for various healthcare costs and insurance premiums. The second option is for the employer to offer an HRA which is integrated, which means that it will be paired with a health insurance plan that is high deductible. Standalone HRAs are uncommon due to health reforms that have enacted restrictions on their use by the majority of businesses. Companies that wish to provide reimbursement towards individual health insurance will usually have to establish a health reimbursement plan which is limited purpose.