Employee Account Options

Health Savings Accounts

This works like an IRA for medical expenses. The account, which is voluntary for employees, must be coupled with a federally qualified High Deductible Health Plan (HDHP). The employee owns the account and makes their own investment decisions.

The employer and/or the employee may make contributions to the account. Employee contributions are deducted pre-tax, earnings accumulate tax-deferred, and withdrawals for eligible expenses are not subject to federal income tax. The accounts are portable. Only a limited-purpose FSA may be used with a health savings account.

Health Reimbursement Arrangements

The HRA is funded by the employer. The account may be set up to cover whatever health expenses the employer wants to reimburse, including deductibles and/or co-payments. The employer decides whether unused funds roll over from year to year. The HRA may be offered with a flexible spending account (FSA).

Flexible Spending Accounts

The FSA is a voluntary option for employees. This account allows the employee to contribute a specific amount from their paycheck into an account that pays for out-of-pocket medical expenses. FSA contributions are exempt from federal tax and usually feature a "use it or lose it" rule.

Health Reimbursement Arrangements

The HRA is funded by the employer. The account may be set up to cover whatever health expenses the employer wants to reimburse, including deductibles and/or co-payments. The employer decides whether unused funds roll over from year to year. The HRA may be offered with a flexible spending account (FSA).

Flexible Spending Accounts

The FSA is a voluntary option for employees. This account allows the employee to contribute a specific amount from their paycheck into an account that pays for out-of-pocket medical expenses. FSA contributions are exempt from federal tax and usually feature a "use it or lose it" rule.

Medical Expense
Reimbursement Plans

Like an HRA, the account is funded by the employer and may be designed to reimburse deductibles and/or co-payments. These funds are not rolled over year to year. The MERP may be offered with a flexible spending account.

Section 125 Premium Only Plan

A plan that permits employees to reduce their compensation by an amount equal to their insurance contributions so that employee contributions are made with pre-tax rather than after-tax dollars. Employees save Social Security, Federal and State taxes on their contributions, and the employer saves FICA tax. The employer's FICA savings often compensate for the administrative cost.

Dependent Care Accounts

With the FSA, an employer may permit dependent care accounts. These accounts allow the employee to contribute a specific amount from their paycheck into an account that pays for daycare expenses. The maximum contribution is $5,000 for a married person filing jointly. Dependent care may include children, elderly parents, or a disabled spouse.