Statistics show that employees continue to shoulder an increasing percentage of health expenses. A typical family of four will spend more than $28,000 per year on medical costs.* To help combat these amounts, employers offer reimbursement accounts for employees to manage out-of-pocket health expenses and save on taxes.
Let’s take a closer look at some of the more popular reimbursement account options, what they offer and how they can help employees manage health expenses.
Health Flexible Spending Accounts
A health flexible spending account (Health FSA) allows employees to save money in taxes and get reimbursed for out-of-pocket medical expenses not covered under their medical plan. Contributions are deducted pretax which means employees can reduce their taxable income and increase their spendable income. Plus, the full election amount is available at the beginning of the plan year. Participants also will receive a benefits debit card to pay for qualified expenses upfront.
Dependent Care Accounts
With a dependent care account, employees can get reimbursed for eligible dependent care expenses. Examples of eligible dependent expenses include child care, babysitters and adult day care. To qualify, dependents must be either children under age 13 or an adult dependent who is incapable of self-care.
Health Savings Accounts
A health savings account (HSA) works in conjunction with a qualified high deductible health plan (HDHP) to combine tax-free savings reserved for qualified medical expenses. Balances roll over each year and earn interest along the way. The account is portable so employees can keep it even after they leave employment.
Limited Purpose Flexible Spending Accounts
A limited purpose flexible spending account (LPFSA) works together with a health savings account (HSA). Only dental and vision expenses are eligible for reimbursement. As a result, employees can use their HSA funds for other purposes or save for future use.
Health Reimbursement Arrangements
The employer establishes a health reimbursement arrangement, not the employee. The employer contributes to the account on behalf of the employee. Employees can use the funds to help pay for certain out-of-pocket deductible and coinsurance expenses. Plus, employers have more control over plan design and total costs.
*2019 Milliman’s Medical Index, July 2019, p. 3