Choosing the Right Benefits for Employees

Choosing the Right Flexible Benefit for Employees Trying to decide which of the many employer-sponsored benefits out there to offer employees can leave an employer feeling lost in a confusing bowl of alphabet soup—HSA? FSA? DCAP? HRA? What does it mean if a benefit is “limited” or “post-deductible”? Which one is use-it-or-lose-it? Which one has a rollover? What are the limits on each benefit?—and so on. While there are many details to cover for each benefit option, perhaps the first and most important question to answer is: which of these benefits will best suit the needs of both my business and my employees? In this article, we will cover the basic pros and cons of Flexible Spending Arrangements (FSA), Health Savings Accounts (HSA), and Health Reimbursement Arrangements (HRA) to help you better answer that question. Flexible Spending Arrangements (FSA) An FSA is an employer-sponsored and employer-owned benefit that allows employee participants to be reimbursed for certain expenses with amounts deducted from their salaries pre-tax. For example, an FSA can include the Health FSA that reimburses uncovered medical expenses and the Dependent Care FSA that reimburses for dependent expenses like daycare and child care. 

Benefits Pros:

• Benefits can be funded entirely from employee salary reductions (ER contributions are an option).
• Participants can access full annual elections on day 1 of the benefit (Health FSA only).
• Participants save on taxes by reducing their taxable income; employers also pay less in payroll taxes like FICA and FUTA.
• An FSA allows participants to “give themselves a raise” by reducing the taxes on healthcare expenses they would have had anyway.

Benefits Cons:

• Employers risk losing money should employees quit or leave the program before fully funding their FSA election.
• Employees risk losing money should their healthcare expenses total less than their election(the infamous use-it-or-lose-it – though there are ways to mitigate this problem, such as the $500 rollover option).

HRAs are also subject to many of the exact non-discrimination requirements. The Health FSA-HRAs often go underutilized; employers may pay several administrative costs disproportionate to how much employees use the benefit. Employers often get “stuck in the weeds” with an overly complicated HRA plan design. Such designs create frustration for the participants, the benefits administrator, and the employer Design or TPA Assistance At B3PA, the third-party benefits administrator powered by HR Service, we are eager to help you navigate this confusion. With 15+ years of experience in administering FSA, HSA, HRA, LFSA, Commuter, and transit benefits, we have the expertise to help you design the best program. For further information regarding the differences between these benefits or setting up one of these solutions, contact B3PA or HR Service at (833) 685-8400 x 1 or Solutions@hrserviceinc.com. Visit us online at www.HRServiceInc.com