Leveraging Multiple Health Accounts for Maximum Benefits
When it comes to health saving and spending accounts, employers have many options to offer to employees.
From health savings accounts (HSA), flexible spending accounts (FSA), health reimbursement arrangement (HRA), and more, employers offer these health accounts to help employees pay for health care related expenses and save for future needs. While employees may be leveraging one of these accounts, they may not know that they can pair multiple employer-offered health accounts together to maximize tax deductions and savings. In this blog post, we explore three health account pairings that employees may not be familiar with.
Pairing an HSA and FSA
An HSA is a tax-advantaged savings account that employees can use for medical expenses. It is paired with a qualifying health insurance plan, such as a high deductible health plan (HDHP). HSAs can be funded by both the employer and employee, offering pre-tax savings options. HSAs do have contribution limits for both individual coverage and family coverage.
A medical FSA is a medical expense account that lets employees set aside a portion of pretax salary for use toward medical costs that are not paid by the health plan. Employees should estimate their expected out-of-pocket eligible expenses for the year as FSA are a use-it-or-lose it account, which means that dollars contributed must be used within the plan year, as they do not roll over at the end of the year.*
For employees that intend to contribute the maximum funds to their HSAs, pairing it with an FSA allows employees to leverage the HSA for long-term investment growth and draw eligible medical expenses from the FSA. However, when HSA and FSA are paired together, the FSA is limited to vision and dental reimbursement only. For individuals and families with orthodontal care, glasses, or future Lasik needs, an FSA is a great option to contribute to, taking advantage of the pre-tax savings, while saving the HSA for larger medical expenses or investment growth.
Pairing a VEBA and FSA
A voluntary employee beneficiary association (VEBA) account is a tax-free health care savings plan that is funded entirely by the employer, typically in the public or government sector.
Once an employer contributes to an employee’s VEBA account, the money belongs to the employee, offering a tax-free way to earn interest on the account.
While a VEBA is a great way for employees to use employer funds to save for retirement, the account does not allow employee contributions and thus employees do not have the opportunity to save pre-tax dollars. While VEBA accounts can be leveraged to pay for medical expenses today, it can also pay for insurance premiums once the employee leaves the employer, bridging the gap between leaving employment and starting Medicare. By pairing a VEBA account with an FSA, employees are able to contribute their own pre-tax dollars toward health care expenses that they know they will have for the plan year, while saving their VEBA dollars for retirement. By leveraging both a VEBA and FSA, employees are able to save their VEBA dollars for retirement, while leveraging pre-tax dollars of the FSA to pay for eligible expenses now.
Pairing an HRA and FSA
While HRAs and FSAs are both common types of health accounts, many employees don’t realize that there are benefits to leveraging both accounts simultaneously. An HRA is a medical spending account that is entirely funded by an employer. An HRA reimburses employees and their families for eligible medical expenses. An HRA is owned by the employer, which means that employees do not contribute to the account and do not pay taxes on the money in the account, nor on reimbursements from the account.
By pairing a FSA with an HRA, employees can contribute their pre-tax dollars to the FSA and pay for eligible expenses that are not reimbursable by the HRA. With this pairing, the HRA pays eligible medical expenses first. The FSA can then be leveraged for care that is not eligible for HRA reimbursement, such as chiropractic care. When both plans are administered by Further, the Further team manages which account to pay from first, removing any confusion for the employee.
There are many advantages to medical spending accounts. From pre-tax savings to employer funded accounts, employees could be missing out on additional financial perks by not understanding how accounts can work together simultaneously.
*Some employers allow a grace period or rollover which means employees can spend down remaining FSA funds or rollover up to $500 into the following year.