Why Health Savings Accounts And Health Reimbursement Arrangements Are On The Increase

Health Reimbursement Arrangements (HRAs) are perfectly designed to help small business

employers who can legitimately hire their spouse cut down on their taxes. An HRA is a way to reimburse the cost for health insurance and out-of-pocket medical expenses that are not covered by insurance.

When Health Savings Account Plans were introduced in 2004, employers also began using this option for their employees. HSA plans are tax-advantaged accounts where you can use the funds to pay for qualified medical care expenses. These Health Savings Accounts can give individuals money to use for medical care that health insurance may not cover. According to Paul Fronstin of the Employee Benefit Research Institute, HSA plans can even be used as retirement accounts.

Statistics showed that in 2010, 16 percent of employers with 10 to 499 employees, and 23 percent of large companies offered either an HRA or an HSA plan. In 2011, HSA plans covered approximately 21 million people.

HRAs and HSA plans are still relatively new, and the number of enrollees continues to increase. In 2006 alone, nine percent of those who had an HRA or HSA had already benefitted from these accounts for three to four years. By 2011, almost 27 percent had held an HSA for three to four years.

What Are Health Reimbursement Arrangements?

Health Reimbursement Arrangements are plans funded by the employer to reimburse employees' medical expenses that are not covered by more traditional health insurance plans. Just like Health Savings Accounts, Health Reimbursement Arrangements offer tax benefits.

Employers benefit from tax deductions, and are allowed to make tax deductible contributions to workers' HRAs. Only employers are allowed to contribute to an HRA, but employees and employers may deposit into an HSA. For the employees, reimbursements are tax free to cover medical costs. How much your employer contributes depends on the specific agreement made. The terms of HRAs are very flexible because employers can adjust benefits depending on employee health care needs. Employee health insurance premiums can also be reimbursed.

What Are Health Savings Accounts?

Health Savings Accounts offer tax advantages much like HRAs. HSA health insurance plans offer a great alternative to traditional co-pay plans because they keep premiums low. In addition, you and your employer may contribute to your HSA. Your contributions are tax deductible up to the limit set by the IRS. For individual HSA owners, the IRS set the maximum annual contribution at $3,100. For family HSA plans, it is capped at $6,250. That entire amount may be deducted from your annual taxable income to cut down on what you pay in federal and states taxes in all but three states.

Unlike Flexible Spending Accounts, you don't have to drain your HSA savings account by the end of the year. The balance is carried over year after year just like an IRA. Meaning, you can treat your HSA as a retirement plan that will help you pay for medical expenses in the future. Health Savings Accounts also grow with tax free earnings. You decide whether you invest them in bonds, mutual funds or stocks.

When it comes to getting the most out of your HSA and an HRA, the more you understand about how these work, the better. They are probably the most popular money-saving strategies that you can use to save on health care and health insurance. With these strategies, you can learn how to start saving thousands of dollars every year.

by: Wiley Long

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