FSAs, HRAs, HSAs:
The Answer to the “Un-Affordable” Care Act?
Submitted by: Corie Kovach, MD, FACOG, MBA and Marilyn Harris, RN
Our patients have sadly become conditioned to have the first question they hear when they call a physician or hospital for a health service be “What is your insurance?”, instead of “Where does it hurt?”
When third party payors became involved in healthcare, they created a rift between the patient and their physician and the shareholders and year-end profit margins became the motivators. Now there are so many complexities, regulations, and costs and fees associated with every aspect of the system, everyone has become frustrated: patients, physicians, nurses, practitioners. The Obama administration attempted an ironically dubbed “Affordable Care Act”. This UN-affordable option has been a disaster to medicine as we have known it and has directly contributed to physician burnout, early retirement, and nationwide shortages in access to healthcare for hardworking Americans. Most insurance-carrying individuals now have seen their deductibles skyrocket to $5000, $10,000, or even $15,000 annually. Even for high deductible health plan (HDHP) policies, an employer will contribute approximately $19,000 and the worker will contribute approximately $6000 towards premium costs.
The best thing to evolve out of the resultant Obamacare HDHPs has been Flexible Spending Accounts (FSAs), Health Reimbursement Arrangements (HRAs), and Health Savings Accounts (HSAs). They all have differences in their sets of rules and must comply with government IRS standards. There are certainly tax advantages to each modality.
FSAs are funded by the employee. However, employers may also choose to contribute.
FSA participants can make pre-tax contributions (before taxes are taken out of your paycheck), Currently, the maximum FSA maximum is $2,650. See IRS website for more current amounts.
You can use your FSA to pay for a wide array of out-of-pocket medical expenses that are approved by the IRS. These expenses can be for yourself or your dependents. Expenses such as; prescriptions, medical visits, eye care, dental care, and first aid supplies.
For FSA funds that remain at the end of the plan year, you have three options:
Use it, because all unspent funds are forfeited.
You can carry over up to $500 to the next year.
You have a grace period of 2.5 months to use the leftover money.
FSAs are not portable. This means you cannot take it with you when you leave, get fired or retire from your job. The account is owned by your employer.
An important note: the full annual election amount can be utilized on day one of the plan year--you do not need to wait for the account balance to build.
HRA accounts are owned and completely funded by the employer. Employees are not allowed to contribute. Your benefit amount does not count as income.
Employers determine the contribution amount for the account each year, and no government limitations exist on contribution amounts.
HRA funds can be used to pay for qualified out-of-pocket medical expenses for yourself and your dependents. Eligible expenses are determined by the employer (but must be approved by IRS) and may vary from one company to the next. A traditional HRA may not be used to pay for health insurance premiums.
Beginning January 1, 2017, qualified small employers may offer separate HRAs that can be used to pay for health insurance premiums, in addition to healthcare expenses. Unused HRA funds may rollover according to how the plan is set up.
HRA plans are not portable as they are employer-owned. When an employee leaves, gets fired or retires, the HRA funds stay behind.
Important points regarding HRAs are that employers can set up a retirement HRA which will allow continuation of the plan and you usually need to pay for the expense first, then file paperwork for reimbursement.
HSAs are owned and funded by the employee. Employers may contribute.
In 2019, individuals may contribute a maximum $3,500 and families may contribute $7,000.
You may use your HSA to pay for a wide array of out-of-pocket medical expenses (IRS-approved), including COBRA, long-term care premiums and Medicare Parts A / B.
You must be in a high deductible health plan (HDHP) to be eligible for an HSA. You must be in a HDHP in order to make contributions.
At year end, any unused funds will rollover to the next year, allowing your account to grow.
You may invest your HSA money after you meet a minimum amount, which varies by plan provider.
HSA stay with the employee for the life of the account, even if you leave, get fired or retire.
A few important items regarding HSAs:
Catch-up contributions are permitted: When the account owners turn age 55, they can contribute an additional $1,000 per year beyond the annual limit
At 65, account owners can use their HSA funds for non-medical expenses. That money will then be treated (taxed) as income, but will not penalized either.
Distinct Tax advantages:
Contributions are tax-free
Withdrawals for qualified medical expenses are tax-free
Interest and investment earnings are tax free
Clearly, taking control back of our individual healthcare is of paramount importance for each patient. Every patient is entitled to choose what company they purchase insurance with or where they elect to have their healthcare dollars spent. As discussed briefly above, the FSA, HRA, and the HSA are three of the best modern-day vehicles to accomplish this task. At Ohio Holistic Healthcare, we will see all patients and help them navigate this information as needed, because we would rather first ask, “Where does it hurt?”
For more information please see our website: www.ohioholistichealthcare.com