Even employers recognize that they are better than group health insurance policies, which can have restrictions imposed by the provider, have higher costs, and require active participation from employees. To simplify things, introducing HRAs and HSAs is a great idea. Both accounts also encourage consumerism from employees by helping them focus on their healthcare costs and understand how they can be more prudent regarding their healthcare.
Additionally, both HRAs and HSAs encourage contribution since all unused funds are carried forward for the next year, allowing them to start the year off with a small nest egg for their health care.
What are Healthcare Reimbursement Accounts – HRAs?
Advantages You Can Get with HRAs
Control – Employers get more control on HRAs since they are the only ones who contribute to it. The coverage of medical expenses with this account will only be made to the pre-defined extent. Anything exceeding this will not be covered.
Flexibility – Usage of this account is also flexible, and employers can make contributions for single or family-based coverage. In 2019, contributions for single employees come up to $5,150, whereas families are eligible for $10,450, but these can vary based on the status of the family. Qualifying employees should meet at least the minimum essential coverage requirements. HSAs can also be used with FSA but have a few restrictions on their usage.
Simplicity – Getting coverage through HRAs is easier. Since funds are available in a company account, the employees only need to submit proof of payment, such as receipts and receive the funds. All rules for the HRAs are defined by the company’s plan and guidelines from the IRS.
Given these advantages, it is easy to see why most employers prefer to use HRAs for their employees.
What are Health Savings Accounts – HSAs?
Advantages You Can Get with HSAs
Control – Unlike HRAs, with HSAs, the employer pays the employees regularly on intervals, as defined by the company. This payment is made whether there are any medical expenses incurred or not. Funds will also go directly into the employee’s HSA, and employees can take these funds with them when they leave the company. Additionally, contributions can be made by employers, employees and third parties as well.
Flexibility – HSAs are incredibly flexible and have uniformity regarding coverage from employers. To qualify for HSAs, employees need to have high deductible plans which meet the requirements of the HSA. In 2019, contributions for single employees came up to $3,500, whereas families are eligible for $7,000 only. While HSAs can occur along with FSA, there are a lot of restrictions and usability is limited at best.
Simplicity – Setting up an HSA is the responsibility of the employee, which can mar the simplicity in usage. Employees need to open up the account in a banking institution or facility, which also has a separate policy with an insurance company. Employees are solely responsible for managing the account and submitting all expenses and proof for payments. IRS establishes all rules and regulations and applies them to HSAs.
The advantages offered by HSAs make them very beneficial for employers and employees, which is why they are often preferred.
Which One is Better?
On the other hand, qualifying for HSAs can be difficult for employees as compared to qualifying for HRAs. Additionally, both these accounts are tax-free in different ways. Contributions for HSAs are deducted from the person’s tax returns. Contributions made for HRAs are usually excluded from the wages of the employees.
Using Both – HRAs and HSAs for Your Employees
Confused about which one should be used? Don’t be. Many employers and employees often benefit from using a combination of both HSAs and HRAs. Additionally, employers can give their employees better benefits by offering them coverage in this manner. Encouraging employee consumerism in this area is also beneficial for businesses since employees are more invested in their healthcare. Introducing plans like these are not only good for their wellbeing but can also improve their engagement in the workplace. Keep in mind that while employers can use HRAs and HSAs together t o offer the best value to their employees, not all employees can do so with ease. They need to ensure that they meet all the qualifying requirements as defined by HSAs and HRAs. These can differ so make sure that your employees are aware of this factor.
If you have any questions- contact us today!