Which reimbursement account is best for my organization?

Offering reimbursement accounts is an easy way to enhance your benefits plan and show your employees you care about their well-being. It also helps with tax savings for both you and your employees. But with several different options to choose from, each with different benefits and requirements, you might be confused about which reimbursement accounts are best for your organization and how to utilize them.

What are your options?

Healthcare Flexible Spending Accounts, Health Savings Accounts, and Health Reimbursement Arrangements each allow employees to pay for eligible health-related expenses with pre-tax dollars. However, each offers distinct advantages and disadvantages to consider.

Healthcare Flexible Spending Account (HCSFA)

HCFSAs are a popular way to help your employees prepare for medical expenses that arise throughout the year.

Why offer an HCFSA:

Your employee’s entire election amount is available at the beginning of the plan year – providing them with a cashflow advantage when eligible medical expenses arise.
There is no requirement to be covered by a specific type of major medical plan, meaning you can offer your employees the most appropriate plan and still allow them to set aside pre-tax funds to pay for eligible medical expenses.

Other considerations:

Employees must use their entire election amount within the plan year (or grace period, if applicable) or risk losing the HCFSA funds.

Health Savings Account (HSA)

HSAs offer a triple tax advantage that enables employees to take the most control of their healthcare spending.

Why offer an HSA:

Participants can make pre-tax or tax-deductible contributions, withdraw funds tax-free to pay for eligible medical expenses, and grow their account tax-free through investments.
HSAs are employee-owned accounts and any remaining balance rolls over from year to year.
Employees can even take their HSA with them if they retire or change employment.

Other Considerations:

Employees must be enrolled in a qualified High-Deductible Health Plan and no other impermissible health coverage to make contributions to an HSA.
Participants can only use the funds that are already in their account.

Health Reimbursement Arrangement (HRA)

HRAs are employer-funded accounts to help employees pay for eligible medical expenses like doctor’s office visits, hospital services, and prescription drugs.

Why offer an HRA:

Helps pay for employees’ eligible healthcare expenses with employer-funded contributions.
Expense reimbursement is tax deductible for the employer and tax-free for employees.
Flexibility for employers to choose how much to contribute and what the funds can be used for.

Other Considerations:

Like an HCFSA, funds generally must be used within the plan year. Any unused funds are returned to the employer or rolled over to the next plan year, based on the employer's plan design.

Making the most of your reimbursement accounts

Once you’ve decided on the reimbursement account(s) that is right for your organization, you need to plan for educating your employees. Without proper education, your employees may not understand the full advantages of the benefits you offer. Then you’re right back where you started: low participation and not realizing the tax savings you’d hoped for.

American Fidelity can help by providing comprehensive education and enrollment support that removes the burden off your HR department. We offer multiple education options, including personalized benefit reviews, group meetings, and online resources to ensure each employee can make informed decisions about their benefits.