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"The company then adds $750 to each
HRA. But the employees still have a $250 deductible
to pay before they can access their HRAs. They get access
to the $750 after they pay the $250. The employer is
self-insuring that $750 since some of its employees
will not even meet the $250 deductible."
FSAs, flexible spending
accounts
An FSA, which some companies call an FSP, or flexible
spending plan, is similar to an HRA except that employees
can -- and usually do -- put money into it. In some
cases companies do, too, but each company sets its own
policies.
In a typical company, employees estimate how much their out-of-pocket medical expenses will be for the year, and that is deducted from their pay before taxes and put into the plan. They then use the money -- often through a debit card -- to make the medical and medical-related payments that their health insurance does not cover.
The biggest problem with an FSA is that
if an employee does not spend everything in the account
by the end of the year, the company gets the money ...
even though it's often the employee's own money. That,
by the way, is an IRS rule, not a company rule.
The biggest advantage is that the money in the account is pretax, reducing your taxable income.
As with HRAs, when the end of the year
draws near, people with money in their FSAs start looking
for things to spend it on, such as an extra pair of
glasses and so on.
The problem with this, Schreier says,
is that, "They are using their money because they
have to, not because they need to. The individual would
have been better off predicting a lower amount of money
to go into the account."
Which plan is right for you?
If your company offers traditional health insurance,
you don't have any decisions to make ... yet. But as
the price of health insurance increases, more and more
companies are switching to nontraditional programs and,
in many cases, making their employees make decisions
that they've never had to make before.
"Companies do want to keep their
employees," Pasek says, "and they do want
them to be happy." But these new plans are just
that, new ... and confusing. "It's a lot like where
we all were when the IRA and the 401(k) were
first introduced. Employees didn't really understand
them, and it was human resources' job to explain them.
And that's the job today, too."
That's why Pasek says that if your company is offering an alternative plan, you need to meet with a benefits specialist in human resources and figure out which is the best one for you, personally. To do that you'll need to know what your health expenses have been in the past and what you can reasonably expect them to be for the next year. If your company will let you bring your spouse to the meeting, do so.
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