Are you an employer facing rising business expenses and looking for savings?

A good place to start would be health care. Premiums are rising each year, but there are ways for you to cut costs without compromising on coverage.

Here’s how:

When assessing which health plan to enroll in, people typically look at the staples: premium, benefits and the physician network. But there is another great aspect that is lesser known, but can significantly broaden your options and will save you money each year. I am referring to the three forms of accounts that can help you cover medical expenses: Health Savings Account (HSA), Health Reimbursement Account (HRA) and Flexible Savings Account (FSA).

In short, these accounts are there to help you cover uncompensated medical expenses such as dental care, vision, etc., or if you’re still below the deductible amount.    

These accounts carry various tax benefits and help you accrue the money you’ll need for out-of-pocket medical costs. These accounts make it a lot more feasible to purchase a cheaper health plan with higher deductible and/or fewer benefits. The combined premium of a low cost plan and the account funds typically add up to less than it would cost to enroll in a high cost plan – while together covering you at least as well for all medical expenses that you’re likely to incur.

This setup can work out great both for people who pay for their own health insurance as well as employers who pay for their employees’ coverage. It is particularly recommended for those on family plans, where the difference in premium costs between high deductible and low deductible plans can be astronomical. They can also serve as a great vehicle for tax savings, similar to an IRA.

The following is brief overview of the three plan options:

Health Savings Account (HSA):

HSAs are both for contributions by the insured individuals themselves or from employers, but can only be used if you are enrolled in qualified HSA high deductible insurance plan. The funds in this account can be used to cover any qualified medical expense. Whatever funds in the account remain unused are fully carried over for use during the following year.

You or your employer contributes a set amount per year (up to $3,350 a person or $6,750 a family) to the HSA. These funds can be deposited directly from your pre-tax payroll, so you will not pay any taxes on this portion of your income or you can put them in with post-tax dollars and take a deduction when you file your tax return. Employer contributions qualify as a valid business expense. Funds in HSA accounts can also be invested and accrue interest on a tax free basis. 

Health Reimbursement Arrangement (HRA):

HRAs can be used for employed individuals only. Though the funds are used for the employee’s qualified medical expenses, they are technically owned by the employer, and contributions can only be made by the employer. The funds that are contributed cannot be deducted from an employee’s pre-tax payroll, but they qualify as a business expense for the employer and do not present any tax burden on the recipient.

There are some major benefits to HRA accounts. They can be used to help employees who are enrolled in any qualified group health plan, even if not a high deductible plan. Employers have the ability to set the maximums as high as they would like, and contribute the funds on a reimbursement basis, i.e. only when an actual claim is submitted.   

The amounts of funds carried over from year to year is at the employer’s discretion. However, an HRA is a self-funded medical plan and as such it’s subject to COBRA just like medical insurance.

Flexible Savings Account (FSA)

An FSA is similar to an HRA in that benefits are nominally-funded and paid from the general assets of the employer.  There are also no requirements for what insurance the employee is enrolled in, though the employer must offer qualified coverage.

However, there are several differences between the two. Contributions to an FSA need to be fixed on an annual basis, regardless of how many expenses are incurred that year. Also, the funds can be deducted from an employee’s pre-tax payroll, making for greater tax savings. Additionally, employees may contribute the money too, though there is a $2,250 annual limit for that.

All unused FSA funds can be carried over to the following year for a grace period of two and a half months. After that, only $500 of the funds remain available. If employment is terminated, funds must be made available to the employee under COBRA guidelines.

Account Administration

Although the structure and usage of these health accounts are strictly regulated, you do not need to file any special government or bank documents in order to set up an account. However, it is important to ensure that the accounts are managed according to law, and all contributions and expense reimbursements are valid. They need to stand up to potential scrutiny from tax authorities or other government agencies.

It is therefore highly recommended that these accounts be administered through a professional third party. This is especially the case with employer plans, where employees want to maintain confidentiality regarding their medical expenses. We at Cosmo can help you determine whether these accounts are right for you. We set them up and manage them. We help you select the most ideal health plan to go along with the account.

As always, pleasant surprises are just a phone call away!

Mark Herschlag is the founder and CEO of Cosmo Insurance Agency, which is based in Ocean County. Cosmo Insurance Agency offers personalized solutions for individuals and businesses looking to obtain health, life, dental, long term care or disability insurance.   

For more information or for a free, no-obligation quote, please call (732) 363-3888 or email
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