Medical acronyms are confusing for those of us who aren’t involved with insurance procedures, claims, and policies on a daily basis. They can even be confusing for some of us who are involved regularly! Stress no more! Here's the skinny on what is what to better enable you to chose a product that works best for your school's mission—or, to help you chose what plan you should invest in for you and your family.
The economy and changes to health care have made many organizations move toward high-deductible health plans, or what insurance companies like calling, “consumer-driven” policies. These require the employee to pay hundreds or thousands in deductibles before costs are absorbed through their insurance. HSAs, HRAs, and FSAs are different options for offsetting medical costs. Let’s take a look at each.
Health Saving Account—HSAs
HSAs are portable health saving plans that you can take with you into retirement, or from job to job, as well as pass on to your heirs. Both you and your employer can contribute to this plan up to $3,100 for an individual, and $6,250 for a family. (These numbers are annually adjusted.)
Contributions to an HSA reduces your taxable salary. Unspent HSA dollars can be invested, grow tax-free, and used later tax-free for medical, dental, and vision expenses. You can use your HSA dollars for non-medical expenses, but these purchases will be taxed 20%. After the age of 65, the additional 20% tax is waived.
To have an HSA, you must be enrolled in a plan with a deductible of at least $1,200 for a single person, or $2,400 for a family. These plans are NOT recommended for those with chronic health problems or pricey prescriptions. HSAs can be bothersome—you’ll need to keep receipts to reimburse yourself, and to file your tax form.
Health Reimbursement Account—HRAs
HRAs are not HSAs, but they do share similarities. One of the biggest differences is HRAs are not usually portable.
It's important that you understand the details of the HRA you're being offered before enrolling. Employers have more control over the design of these plans, and some are designed so that you must use what dollars you contribute within the plan year or you lose that money. However, employers can choose to rollover a certain percentage from year to year and have it accessible to you after you've moved on from the school. What's important before enrolling in a HRA is that you understand the details of the plan proposed. There are many variants which may or may not work for your unique situation.
The main appeal to HRAs is it’s a solution to a high-deductible plan. Employers may offer a lower premium and put half of your deductible into an HRA account for you to use for doctor visits and other medical costs. In most cases, if you don’t visit a doctor much, you can use your HRA account to pay for dental and vision costs. However, not all HRA plans allow this, so you’ll have to pay close attention to the details before signing on.
Flexible Spending Accounts—FSAs
A Flexible Spending Account, or Section 125 plan as they’re sometimes referred to, is an option where you can divert salary pre-tax into such an account to pay out-of-pocket medical, dental, or vision care expenses. These accounts are similar to HRAs in the respect money not used by the end of the year is lost. Also note, if you have an HSA, you can use your FSA only for vision and dental expenses.
These accounts are ideal for people who know what they’re average monthly medical expenses will be. For example, if you know certain prescriptions cost you $X amount a month, you can budget for those by adding that money into your 125 account pre-tax.
These accounts, as well as HSAs and HRAs, do not include over-the-counter medications without a doctor's written prescription. And, starting for the 2013 tax year, FSA contributions will be limited to $2,500 a year.
ISM offers Flexible Spending Accounts for private-independent schools. For more information about our Section 125 plan click here.
