HlthCare Spending Accts

HealthCare Spending Accts

A HealthCare Spending Account is a special, tax-free fund you can use for certain health care services. Think of it as an "expense account" you can tap into for costs ranging from doctor's office visits to prescription drugs to contact lenses.

Flexible Spending Accounts (FSAs):

With a health care FSA, your employer takes money out of your paycheck before federal taxes. Then you draw on the funds during the plan year to pay for eligible expenses. FSA funds can not be carried over to the next year and if the funds are not used entirely for the plan year, the remaining funds are lost and go to the employer (use it or lose it). Also, if you leave your current employer, you can't take the money with you – but you do have a "window" when you can file claims for expenses you had before you left the employer.

Health Savings Accounts (HSAs):

The Health Savings Account is a special kind of bank account designed to help you build tax-free savings for health care throughout your lifetime. They are meant to be used in conjunction with a qualifed high deductible health plan. Also, unlike FSAs, HSAs do NOT have a use it or lose it provision. The account funds belong to the individual and can be used at any time for qualified medical expenses. Think of an HSA as a medical IRA.

2019 HSA Limits

• • HSA holders can choose to save up to $3,500 for an individual and $7,000 for a family (HSA holders 55 and older get to save an extra $1000) – and these contributions are 100% tax deductible from gross income.

• Minimum annual deductibles are $1,350 for self-only coverage or $2,700 for family coverage.

• Annual out-of-pocket expenses (deductibles, co-payments and other amounts, but not premiums) cannot exceed $6,750 for self-only coverage and $13,500 for family coverage.

Effective January 1, 2020, the IRS is raising minimum deductible levels and allowable out-of-pocket maximums for health savings account (HSA)–qualified plans. These changes will be effective upon the 2020 contract renewal. See below for how this might affect your clients’ plans.

Minimum deductible levels

The impact of changes to minimum deductibles for an HSA-qualified plan depends on the plan’s 2019 self-only deductible:*

Note: Plans with out-of-pocket maximums tied to deductibles will also see a proportionate increase to the out-of-pocket maximums.

Out-of-pocket maximum levels

Note: For 2020 non-grandfathered plans, the Affordable Care Act individual out-of-pocket maximum of $8,150 for family members also applies.

Please consult your tax advisor for more information or clarifications.

Health Reimbursement Arrangements (HRAs):

The Health Reimbursement Arrangement, or HRA, is like an "expense account" to pay for health care expenses your plan doesn't cover. Your employer chooses how much goes into the account. It's usually paired with a health plan, like a PPO plan, with a high deductible (though not necessarily the type of plan you need for a Health Savings Account).

For more information about these types of accounts the Family Health Budget website offers a good explanation with more detailed information. You can take a quiz to determine which plan is right for you, compare accounts as well as use their calculators to determine how much you can save.