Helping Members Save on Medical ExpensesPersonal spending accounts (PSAs) allow workers to use pre-tax dollars to pay for eligible medical and dependent care expenses. Depending on the type of account, it may be funded by the worker, the employer, or both. The money is generally contributed pre-tax, although post-tax contributions can be made, and withdrawals are always tax free if used for eligible expenses.
Types of PSAs include:
- Health Savings Accounts: Tax-advantaged accounts owned by workers that can be used to pay for qualified healthcare expenses. An HSA also has long-term savings potential for workers to use for future medical expenses (including during retirement). HSAs are only available with IRS-qualified high deductible health plans. Both employers and workers can contribute to HSAs.
- Heath Reimbursement Arrangements: HRAs are a “promise to pay” by an employer. The employer designates tax-free dollars to reimburse workers for their qualified health plan expenses. Employers do not deposit money into an account up-front. Instead, claims are paid as they are incurred. An HRA may be offered with any CHP option.
- Flexible Spending Accounts: FSAs are tax-advantaged accounts that can be offered alongside a traditional health plan to allow workers to set aside pre-tax dollars to use toward qualified healthcare or dependent care expenses. Employers can contribute to the account as well. Money in an FSA is generally “use it or lose it,” with any money left in an FSA at the end of the plan year forfeited to the employer. However, the employer does have the option to allow a rollover of funds up to $500 for the accounts. Medical FSAs can be paired with any CHP option (only post-deductible FSAs can be offered with an HSA). Dependent care FSAs may be offered regardless of enrollment in the CHP.
Contribution Limits:HSA - 2016: $3,350 for individuals, $6,750 for families. HSA holders 55 and over can contribute an extra $1,000.
2017: $3,400 for individuals, $6,750 for families. HSA holders 55 and over can contribute an extra $1,000.
Medical FSA: $2,600 on employee contributions. Employer contributions are not counted against the maximum.
Dependent Care FSA: $5,000 for qualifying individuals or those who are married filing jointly. $2,500 for those who are married filing separately.