Health insurance can be confusing, even without acronym overload. If you’ve been thinking about using FSAs (flexible spending accounts), HSAs (health savings accounts) or QSEHRAs (qualified small employer health reimbursement arrangements), it’s important to know the ins and outs of these plans. Here’s what you need to know:
How They’re Similar
Whether you’re using an FSA, HSA or QSEHRA, it’s important to know that they’re all tax-advantaged plans to help employees save money on their healthcare expenses. They also help shift the power back into employees’ hands, so they are more engaged in their healthcare choices.
That said, employees often need help making these tax-advantaged plans work for them AND their company. Compass Health Pro consultants can help employees understand and more effectively use tools like HSAs, FSAs and QSEHRAs. Whether it’s decoding health plan coverage questions, answering questions on how these accounts work or simplifying healthcare by resolving medical billing issues, a healthcare navigation solution powered by a Compass Health Pro can help employers and employees realize the cost savings from consumer-directed health plans. One thing is certain: It’s better for companies and employees to spend healthcare dollars wisely, and a personal Compass Health Pro can help ensure this happens.
How They’re Different
Each of these tax-advantaged plans is designed for different purposes and have different features.
Flexible Spending Accounts (FSAs)
FSAs are offered through an employer’s group plan. However, they’re not an option if you’re self-employed.
- Funding: Funded by employee, but employers have the option to contribute.
- Eligible Expenses: Employees can use FSA funds to pay for deductibles, co-payments, prescriptions, dental expenses and over-the-counter medications with a prescription, but not for insurance premiums.
- Ownership: Accounts are owned by the employer. Employees lose unused funds at the end of the year.
- Access: Employees can use these funds at any time (as long as they are used before the end of the year). Employees can even use the funds before they have been deducted from their paychecks.
- Tax Benefits: Employees don’t pay taxes on this money.
- Annual Limits: FSAs are limited to $2,650 per year for employees. If employees are married, spouses can put up to $2,650 per year in an FSA.
Health Savings Accounts (HSAs)
HSAs are designed to be used with high-deductible plans. They are a portable, long-term savings plans for medical expenses.
- Funding: Funded by both employer and employee.
- Ownership: Accounts are owned by employees, and they can take these funds with them when they leave an employer.
- Eligible Expenses: Employees must be enrolled in a high-deductible health plan (HDHP) in order to have an HSA. Funds can only be used for medical expenses that fall under the health plan’s deductible. HSA funds cannot be used to pay insurance premiums.
- Tax Benefits: Tax-deductible contributions, tax-free reimbursements and tax-free accumulation of interest and dividends.
- Annual Limits: HSAs are limited to $3,450 per year for employees, $6,900 per year for families.
- Access: Employees have immediate access to funds in the account.
Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs)
QSEHRAs are designed for small businesses with less than 50 employees that don’t offer a group health plan. They provide employees with tax-free reimbursement for medical expenses.
- Requirements: Employees must have health insurance (minimum essential coverage) to participate. However, unlike HSAs, employees don’t need to have a high-deductible health plan. They simply register for the plan that best suits their needs.
- Funding: Funded entirely by employer (no employee contributions).
- Ownership: Accounts are owned by employer. The funds stay with employer when employees leave the company.
- Eligible Reimbursements: Funds can be used to reimburse health insurance premiums and medical expenses. There is also an option to reimburse employees for prescriptions or if an employee uses a spouses’ health plan.
- An Arrangement, Not an Account: Unlike HSAs and FSAs, QSEHRAs reimburse employees for expenses/premiums after they are incurred; employees just provide the receipts. Employers aren’t funding an account ahead of time, and if employees never make a claim, the money stays with the employer.
- Tax Benefits: Tax-free for both employee and employer (i.e., no income tax, no payroll tax).
- Annual Limits: QSEHRAs are limited to $5,050 per year for employees, $10,250 per year for families.
- Access: Employees have immediate access to funds, once they join the QSEHRA.
Why QSEHRAs Are a Great Alternative for Small Employers
QSEHRAs are growing in popularity among small business owners. It’s easy to see why, given the many benefits they offer:
- Flexible Design: Employers can design a QSEHRA plan to fit their needs. Want to just reimburse for premiums? Great. Want to add qualified medical expenses to the deal? Even better. Want to scale the contributions based on age, status, or family size? You can do that, too (as long as it’s fair!).
- Budget Friendly: QSEHRA costs are predictable by design. Unlike a health stipend that offers no tax advantage or a group plan whose costs might creep up year over year, employers control the amount contributed to a QSEHRA. In addition, unlike an HSA, QSEHRA funds stay with the employer if no claims are submitted or if the employee leaves the company.
- Boosts Retention: While both QSEHRAs and HSAs help with employee retention, a key difference is that employees must have a high-deductible health plan to offer an HSA. With a QSEHRA, employees can choose the health plan that’s right for them instead of being looped into a group plan that might not cover their doctors, prescriptions or health needs.
- That Little Something Extra: With a QSEHRA, employers can even offer smart benefits that includes Teledoc, Compass healthcare navigation services, dental and vision discount plans—all designed to recruit and retain talent.
Doubling Up: How to Use QSEHRAs and HSAs Together
If your company would like to offer QSEHRAs to your employees that have a high-deductible plan (and who already have an HSA), there are a few important things to keep in mind:
- To contribute to employees’ HSAs, the QSEHRA needs to be set up to reimburse premiums only. This way, the QSEHRA will be HSA-eligible.
- Employees will be able to use the QSEHRA to reimburse their health insurance premiums and use the HSA to cover their medical expenses.