Comparison of Health FSAs, HRAs, and HSAs

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  • Plan Design or Compliance Issues
    Health FSAHRAHSA
    A reimbursement plan authorized under Internal Revenue Code (Code) Section 125 to pay for the qualified medical expenses of the employee and his or her spouse, dependents, or adult children. An employer funded plan authorized by IRS guidance that reimburses the employee for qualified medical expenses of the employee and his or her spouse, dependents, or adult children. Typically combined with a High Deductible Health Plan (HDHP). A tax-exempt trust or custodial account authorized under Internal Revenue Code (Code) Section 223 and created to pay for the qualified medical expenses of the account holder and his or her spouse or dependents. Must only be covered by a qualifying High Deductible Health Plan (HDHP).
  • Who is eligible to set up an account?
    Health FSAHRAHSA
    An employee whose employer offers a Health FSA option. An employee whose employer offers an HRA that is integrated with a major medical plan that meet the Health Care Reform requirements, subject to employer-designed exclusions. Eligibility may or may not be tied to HDHP enrollment. A retiree may also be covered by an HRA. Any individual who is covered under a qualified HDHP as defined in Code Section 223. The individual cannot be enrolled in Medicare, or claimed as a tax dependent on anyone else's tax return. With certain exceptions, the individual cannot have any non-HDHP health coverage.
  • Whose medical expenses are eligible to be reimbursed?
    Health FSAHRAHSA
    Those of the employee, his or her spouse, children (through the end of the calendar year in which they turn age 26), and other tax-qualified dependents, incurred while coverage is in effect. Those of the employee, his or her spouse, children (through the end of the calendar year in which they turn age 26), and other tax-qualified dependents, incurred while coverage is in effect Those of the employee, his or her spouse, and tax-qualified dependents, incurred after the HSA has been established and only if the individual is not covered by any non-HDHP health coverage. Does not allow for expenses of adult children to be reimbursed unless they qualify as dependents for tax purposes.
  • What are the requirements for a corresponding health plan?
    Health FSAHRAHSA
    No health plan requirements. The HRA must be integrated with a major medical plan that meets the Health Care Reform requirements and an individual must elect major medical coverage.  Retiree-only HRAs do not have a health plan requirement. Qualified HDHP: For 2013, minimum deductible of $1,200 for self-only coverage, and $2,400 for family coverage with a maximum out of pocket expense of $6,250 for self-only coverage, and $12,700 for family coverage. These limits are indexed annually by the IRS. Plan can provide first-dollar coverage of preventive care and still be qualified. Plans may set higher deductible and out of pocket amounts for outof-network services.
  • Can account be funded with Cafeteria Plan salary reductions?
    Health FSAHRAHSA
    Yes. Not for HRA, but it is permitted for HDHP. Yes.
  • Do Code Section 125 nondiscrimination requirements apply?
    Health FSAHRAHSA
    Yes. No. HRAs cannot be offered under a cafeteria plan. The nondiscrimination rules will apply to the HDHP offered under a cafeteria plan. Yes, for the HDHP and/or the HSA offered under a cafeteria plan.
  • Do Code Section 105 (Amounts received under Accident and Health Plans) nondiscrimination requirements apply?
    Health FSAHRAHSA
    Yes. Yes. Yes, for self-insured HDHP. (Similar rules apply for insured plans under the Affordable Care Act.) No for HSA, but employer contributions made outside a cafeteria plan are subject to comparability requirements.
  • Do the uniform coverage rules apply, requiring the annual coverage amount to be available as of the first day of the year?
    Health FSAHRAHSA
    Yes. No. Coverage may be prorated by plan design (e.g., employee has $100 credited to a bookkeeping account each month). However, employer may choose to accelerate availability of credits. No, but IRS guidance indicates that employers may choose to accelerate funding of HSA salary reduction elections under a cafeteria plan so long as certain requirements are met.
  • Must coverage be elected/provided for a full 12month period and are there prohibitions on mid-year changes?
    Health FSAHRAHSA
    Yes. Not for HRA. Yes for the HDHP funded through cafeteria plan. Not for HSA. IRS guidance confirms that the 12-month coverage and election change rules do not apply even for HSAs offered through a cafeteria plan. Participants who make HSA contributions via a cafeteria plan must be allowed to make mid-year election changes at least monthly.
  • Are there ordering rules that apply?
    Health FSAHRAHSA
    Yes. Generally, health FSAs must be payors of last resort when used in conjunction with an HRA. But HRAs and health FSAs can be drafted to require that the HRA pay only after health FSA amounts are exhausted. Cannot reimburse expenses that have been reimbursed elsewhere. Yes. Generally, health FSAs must be payors of last resort when used in conjunction with an HRA. But HRAs and health FSAs can be drafted to require that the HRA pay only after health FSA amounts are exhausted. Cannot reimburse expenses that have been reimbursed elsewhere. No. HRA or health FSA participants do not need to exhaust their HSAs before seeking payment or reimbursement through the HRA or health FSA. However, funds from a general purpose HRA or general purpose health FSA may not be used until the HDHP deductible has been satisfied for the year if the account-holder wants to remain HSA eligible. Cannot reimburse expenses that have been reimbursed elsewhere.
  • Can an individual participate in more than one of these accounts at the same time?
    Health FSAHRAHSA
    An employee who is covered by a health FSA may also participate in an HRA. A traditional, general purpose health FSA will make an individual ineligible for an HSA. But a limited-purpose health FSA will not prevent HSA eligibility. An employee who is covered by an HRA may also participate in an health FSA. A traditional, general-purpose HRA will make an individual ineligible for an HSA. But a limited-purpose or post-deductible HRA will not prevent HSA eligibility. A traditional, general-purpose health FSA or HRA will make an individual ineligible for an HSA. But a limited-purpose health FSA or HRA, or post-deductible FSA or HRA, will not prevent HSA eligibility.
  • Who may contribute to the account?
    Health FSAHRAHSA
    The employee, employer, or both. Usually funded by the employee, who chooses to set aside a certain amount of his or her pay in a health FSA. Only the employer. The account holder, employer, both, or anyone on behalf of the account holder.
  • What are the contribution limits?
    Health FSAHRAHSA
    Employee contributions are limited to $2,500, indexed annually for inflation. No federal income tax law limits. Employers typically set limits, usually equal to or less than the amount of the deductible of employees' health plan. The statutory limit set annually by the IRS. For 2013, $3,250 for individual coverage and $6,450 for family coverage.
  • What is the tax treatment of contributions?
    Health FSAHRAHSA
    Employees pay no FICA, Federal or State income taxes (in many states) on employer or employee health FSA contributions. Employers pay no FICA, FUTA, or State unemployment taxes (in many states) on either employee or employer health FSA contributions. Employers receive an expense deduction for employer payments. Because HRA "contributions" are only a nominal book keeping entity for each participant, employees pay no FICA, Federal or state income tax on the contribution. Also, employees pay no taxes on actual payments.  Employee contributions made outside of a cafeteria plan are deductible for Federal and State income tax purposes (in many states). If contributions are made under a cafeteria plan, employees pay no FICA, Federal or State income taxes (in many states). Employees pay no FICA, Federal or State income taxes on employer contributions. Employers pay no FICA, FUTA, or State unemployment taxes (in many states) on HSA contributions. Employers receive an expense deduction for their contributions.
  • What medical expenses are eligible for reimbursement?
    Health FSAHRAHSA
    Unreimbursed qualified medical expenses as defined in Code Section 213(d) incurred during the coverage period. Cannot reimburse insurance premiums. Cannot reimburse qualified long-term care services. Unreimbursed qualified medical expenses as defined in Code Section 213(d) incurred while coverage is in effect, including health insurance premiums. Employers often limit the expenses that are eligible for reimbursement under the HRA. Unreimbursed qualified medical expenses as defined in Code Section 213(d) incurred after HSA is established. Cannot reimburse insurance premiums with limited exceptions for COBRA coverage, long-term care insurance, health coverage while drawing unemployment compensation, and if 65 or older, any health insurance except a Medicare supplement policy.
  • Is claims adjudication required? That is, must someone other than the covered employee/individual process and approve the claim
    Health FSAHRAHSA
    Yes. Yes. No. However, HSA account-holder must retain records, which are subject to audit by the IRS.
  • Must claims be incurred during current period of coverage to be reimbursed?
    Health FSAHRAHSA
    Yes. Yes, but claims incurred but not reimbursed due to an insufficient HRA balance can be reimbursed in subsequent year if allowed by the plan. No. Distributions for qualified medical expenses will be tax-free if incurred at any time after the HSA is established
  • Are withdrawals for non-medical expenses allowed?
    Health FSAHRAHSA
    No. No. Yes, but distributions not used exclusively to pay for "qualified medical expenses" are included in income and are subject to a 20% additional tax, except when the individual is age 65 or older, disabled, or has died during the year.
  • Can funds be carried over from one year to the next?
    Health FSAHRAHSA
    No. Unused health FSA balances are forfeited at the end of the year. Yes. Unused amounts in an HRA may be carried over, subject to employer design. Yes. HSA funds may be carried over indefinitely during a participant's lifetime. Upon a participant's death, an HSA may be passed on to a surviving spouse without federal tax liability.
  • Is it an ERISA plan? (If a plan is subject to ERISA, various requirements will apply).
    Health FSAHRAHSA
    Yes, unless tje plan is maintained by an employer not subject to ERISA, such as a governmental entity or church. Yes, unless the plan is maintained by an employer not subject to ERISA, such as a governmental entity or church. Generally no, unless an employer takes action that triggers an application of ERISA under DOL guidance. Employer contributions alone do not subject an HSA to ERISA.
  • Can amounts that are unused at termination of active employment continue to be spent down?
    Health FSAHRAHSA
    Generally no. Cannot use unused amounts to pay for claims incurred after termination (except as COBRA or a plan's grace period may allow.) Yes. HRA can (but is not required to) permit unused amounts to be used until depleted to pay for claims incurred after termination. HRAs are subject to COBRA. Yes. HSAs are nonforfeitable and portable. Employees may take funds with them when they leave or change jobs.
  • Is there a funding requirement?
    Health FSAHRAHSA
    No. Accounts are typically notional, or bookkeeping accounts. While there is no requirement to set funds aside in a separate account, an employer may choose to do so. But any funding may invoke ERISA's trust requirement if amounts are segregated from general assets. No. While there is no requirement to set funds aside in a separate account, an employer may choose to do so. But any funding may invoke ERISA's trust requirement if amounts are segregated from general assets. The Code requires that HSA contributions be put in trust. ERISA's trust requirements will also apply to an employer-sponsored HSA that is an ERISA plan.
  • May interest accrue on account balances and my funds be invested?
    Health FSAHRAHSA
    No. There is no requirement that interest accrue but employers have discretion to credit interest to the HRA accounts. Employees may not invest HRA funds. Yes, to the extent permitted by the HSA trustee. Account holder is not taxed on interest accruals or investment earnings.
  • Are account earnings taxable to the employee?
    Health FSAHRAHSA
    N/A No. No.

American Fidelity Assurance Company does not provide tax or legal advice.

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