Choosing The Right Healthcare Plan

Different life events and financial goals can determine the best healthcare account options for you. Flexible Savings Accounts (FSA) and Health Savings Accounts (HSA) both offer tax benefits and have annual contribution limits for individuals.

Health Reimbursement Accounts (HRA) and Medical Expense Reimbursement Accounts (MERP) are administered by your employer – but a MERP will allow for employee contributions. We’ve listed some key points about each type of plan that might help you understand and determine what the best option is for you.

FSA – FLEXIBLE SAVINGS ACCOUNT

  • Premium Only—EEs pay premiums on pre-tax basis
    • Reduces EE tax liability
    • Reduces ER payroll tax
  • Healthcare—EEs set aside $ for unreimbursed medical expenses
    • All expenses must be qualified medical, dental, vision, pharmacy expenses
    • “Use it, or lose it” for expenses occurred within calendar year
    • Transportation and Parking Benefits—Employees can set aside $ for qualified commuter expenses
  • Dependent Care Expenses—Employees accumulate pre-tax funds to reimburse for qualified childcare expenses, or daycare expenses for disabled or elderly disabled dependent. “Use it, or lose it”

HSA – HEALTH SAVINGS ACCOUNT

  • H.S.A. is a “medical” IRA. It is a tax advantaged account that individuals with an HDHP can fund and use to pay for qualified medical, dental, vision, and pharmacy expenses.
    • HSAs are owned by the individual and are fully portable
    • An employer and/or employee can contribute to an H.S.A.
    • H.S.A. contributions are always federally tax free. In addition, contributions are tax-free in 47 states (AL, CA, and NJ are subject to state taxes only)
    • H.S.A. typically has higher deductibles and lower premiums
  • Even with Medicare, retirees face out-of-pocket costs (premiums, deductibles, co-pays).
    • HSA.s cover the gaps.
      • Long-term care services
      • LTC Insurance
      • Dental/Vision/Hearing Aids
    • HSAs take advantage of triple tax advantages
      • H.S.A. contributions are tax deductible
      • Interest earned in an H.S.A. is tax-free
      • Withdrawals for qualified medical expenses are tax-free

FSA & HSA ELIGIBLE EXPENSES

  • Office visit co-payments
  • Deductibles
  • Dental expenses
  • Vision expenses
  • Walking assistance (wheelchair, cane, walker)
  • Hearing aids
  • Laser eye surgery
  • Medicare premiums
  • Prescription drugs
  • Physical therapy
  • Cares Act – Certain over the counter drugs

HRA- HEALTH REIMBURSEMENT ACCOUNT

  • Health reimbursement arrangements (HRAs) are tax-advantaged accounts that are funded with employer dollars to pay employee expenses not covered by the health plan.
    • HRAs offer a multitude of plan design options.
    • HRAs are not pre-funded and are instead a promise to pay arrangement (i.e. only pay when employee files a claim)
    • HRAs are employer owned and only employers can contribute

MERP- MEDICAL EXPENSE REIMBURSEMENT ACCOUNT

  • Similar to HRA however:
    • Employee contribution is permissible
    • Allows employers to cost share premiums, administration, and potential claims
    • Employers set premium equivalent rates
  • MERP administration is not “tied” to carrier
  • Ideal Candidate
    • Must be 15 or more employees
    • Employer should have existing group policy At least Silver Level (Gold or Platinum are better)
    • Employer seeking creative solution to enhance benefits and reduce cost.

Be sure to consult with your tax professional to analyze your specific tax situation. At Taxperts, we can assess your small business structure and suggest ways to increase your savings. Check out our website, Facebook page, or LinkedIn page to learn more.

Receive the latest news

Subscribe To Our Newsletter

Get notified about new articles

We offer an accounting newsletter with timely tips for growing your business.

Select list(s) to subscribe to


By submitting this form, you are consenting to receive marketing emails from: Taxperts Accounting Services PC CPA. You can revoke your consent to receive emails at any time by using the SafeUnsubscribe® link, found at the bottom of every email. Emails are serviced by Constant Contact