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Open enrollment is fast approaching and with it comes the annual scramble to understand all of the changes to our benefits packages. For employers, this is also a time to ensure that your employees are prepared to make the best choices for their families when it comes to their health coverage. While most people are familiar with flexible spending accounts (FSAs), there are other types of pre-tax health accounts that your employees may not be aware of. By understanding the features and benefits of these accounts, your employees will be better equipped to make informed decisions during open enrollment.
Flexible spending accounts (FSAs)
The most popular type of pre-tax health account is the flexible spending account or FSA. FSAs allow employees to set aside money from their paychecks before taxes are taken out to use on eligible health care expenses. FSAs are great because they can help employees cover things like copayments, deductibles, and prescription drugs. One thing to keep in mind with FSAs, however, is that they typically have a "use it or lose it" clause. This means that any money that isn't used within the plan year is forfeited. Employees need to estimate their expected health care expenses for the year carefully when deciding how much to contribute to their FSA. For this reason, it's important to communicate to employees that they should only enroll in an FSA if they're confident they will be able to use all of the funds before the end of the plan year.
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Limited purpose flexible spending accounts (LPFSAs)
A limited purpose FSA (LPFSA) functions similarly to a regular or medical FSA but with a few key differences. The differentiator between a Medical FSA and a Limited FSA are the expenses covered. A Medical FSA can be used to pay for your out-of-pocket expenses related to medical care, dental care and vision. LPFSAs can only be used to cover dental and vision expenses—not general medical expenses like copayments or deductibles. LPFSAs also have a "use it or lose it" clause like regular FSAs, so employees need to be careful not to over enroll if they don't think they'll be able to use all of the funds before the end of the plan year.
Health reimbursement accounts (HRAs)
Another option employers might consider offering is a health reimbursement account or HRA. HRAs are employer-funded plans that reimburse employees for eligible medical expenses up to a set amount each year. HRAs provide a flexible plan design for employers to meet a variety of needs. One advantage is there is no "use it or lose it" clause—any funds not used in one year can be carried over to future years. However, one downside of HRAs is that they typically only cover expenses incurred after an employee enrolls in the plan — so if an employee has already incurred eligible expenses before enrolling in an HRA, those expenses generally won't be covered.
Health reimbursement account VEBA (HRA VEBA)
An HRA Voluntary Employee Benefit (VEBA) Account gives employers the power to provide employees with the right savings at the right time. They are similar to a regular HRA in that it reimburses employees for eligible medical expenses up to a set amount each year.
The idea of an HRA VEBA is to allow employees, with the help of tax-free dollars from their employer's health plan, to manage health care costs for themselves and any dependents. In addition, you can customize individualized coverage that has features like low deductibles or no co-pays while also being compatible with other plans. With diverse plan options, an HRA VEBA is a perfect solution for employers to protect employees from cost increases while controlling their own expenses.
Open enrollment communication
Get started with a communications calendar and set communication goals for the year. Updating employees on their benefits shouldn't just happen once a year. Use easy-to-follow guides and resources to help convey complex messaging. Take a year-long approach to ensure employees are receiving pertinent and important benefits information when they need it most. This will not only help reduce employee confusion, but employee utilization of their benefits will also rise as they understand more about their pre-tax accounts.
Start open enrollment off right
There are a lot of different types of pre-tax health accounts out there, and it can be tough for employers to keep them all straight — let alone explain them to their employees in a way that's easy for them to understand. However, taking the time to review the different types of accounts available and determine which ones make the most sense for your company and your employees will pay off come open enrollment season. By being prepared and proactive about communicating benefits changes and updates, you can help ensure that your employees are ready to hit the ground running come January 1.
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