Flexible Benefits/Health Reimbursement Arrangement
Flexible Spending Accounts (FSA), sometimes called Section 125, Cafeteria plans or Flexible Benefit Plans, represent an employee funded plan concept. These employer-sponsored programs allow employees to use before-tax dollars to pay for many regular family expenses. The money that employees contribute to the FSA is not subject to Federal and State Withholding Taxes or Social Security and Medicare contributions. These payroll tax savings result in an increase in take-home pay for participating employees and a reduction in payroll taxes for the company.
Expenses that can be paid under a FSA include:
- Child/Dependent care expenses necessary to employment
- Medical, dental, and vision expenses paid out of pocket
- Employee paid health, dental and vision insurance premiums
- Employee paid disability insurance premiums
- Employee paid term life insurance premiums up to $50,000 in death benefit
Health Reimbursement Arrangement (HRA) is an employer funded plan. The design is flexible and should fit the organization. It allows the purchase of a high-deductible health insurance plan and reimbursement to the employee for some expenses.
With the Health Reimbursement Arrangement, the expenses for out-of-pocket doctor, dental and vision expenses are eligible so it is similar to a FSA. However, employees may not contribute money to the HRA. Money may be carried forward from year to year depending on the plan design. The plan does not pay the balance to the employee at termination.
For example:
A hypothetical organization, Too Good Nonprofit, purchases a health insurance policy with a $1,000 deductible. A HRA account is set up for each employee participating in the health plan and is funded with $500 per year. As employees incur expenses that are defined as covered under the plan, a claim form is submitted and payment is made to the employee.
Contact Colorado Nonprofit Insurance Agency (click here) for additional information on these plans. |
