Making Sense of Your Health Plan (continued)

A health plan may also be defined by the payment structure, such as the amount of the deductible.

High Deductible Health Plan – (HDHP) – a deductible is a fixed amount of money you must first pay before your health insurer will cover the costs of most of your health services. An HDHP is a type of plan that has a high deductible amount that you must pay before your health plan begins to pay. For example, if you have a HDHP with a deductible of $1,200 and a hospital bill totaling $1,500, you would be responsible for paying $1,200 of your medical expenses before the health plan would start paying. You will only have to pay co-pays for covered services after your meet the $1,200 deductible.

Employers and individuals may also open special accounts created to pay for Qualified Medical Expenses (QMEs). QMEs are defined in the tax code as any costs incurred in the process of receiving “medical care,” including expenses related to the diagnosis, treatment, or prevention of a medical problem that is or could lead to the proper functioning of the body.

Health Care Accounts for Qualified Medical Expenses

Health Reimbursement Arrangement (HRA) –  An HRA is used to reimburse employees for QMEs.  All employees are eligible.  Reimbursements are excluded from the employee’s gross income, giving the employee a tax advantage.  The employer is the sole contributor and unused funds may carry over, but may be capped.  An HRA is not portable.

Health Savings Accounts (HSA) –  An HSA is used with a HDHP to pay for QMEs of the account holder and dependents.  Anyone who is covered by an HDHP is eligible.  Contributors include the employee, employer or both.  The unused funds may carry over from year to year and is portable.  The account earns tax-free interest and employee contributions ae tax deductible.  Qualified withdrawals are untaxed.

Flexible Spending Accounts (FSA) – An FSA is created to reimburse QMEs or health insurance premiums for account holder and dependents.  All employees are eligible unless self-employed.  Contributors include employer, individuals, or both. This is a “use it or lose it” arrangement – it is not portable.  Employee contributions are made on a tax-fee basis.

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