Employee Health Account Options

Health Savings Accounts

The account works like an IRA for medical expenses. The account is voluntary for employees. The account 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 can be rolled over year to year. The HRA may be offered with an FSA.

Flexible Spending Accounts

The FSA is a voluntary option for employees. The 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. The funds are not rolled over year to year and 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 FICA savings often compensates 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 day care expenses. The maximum contribution is $5,000 for a married person filing jointly. Dependent care may include children, elderly parents or a disabled spouse.