Tax-Advantaged Health Accounts 15

Introduction

Employeebenefitsareacrucialbutoftencomplicatedpartofanemploymentpackage,andarenotalwaysaseasytounderstandassalaryandvacationtime.However,insurancebenefitsaremuchmorethanjustajobperk.Theyarekeysafeguardsthatcanenhanceyourqualityoflifefordecadestocome.

Whenyoufirstreceiveinformationaboutyouremployeebenefitspackage,youmightfeelabitoverwhelmed.Thecomplexterminologyandmechanicsofinsurancepoliciescanbedaunting,andyoumightbeuneasyaboutspendingaportionofyourpaycheckinreturnforsomethingthat maynotbeofusetoyouforsometime.There isalsotheanxietythatcomeswith wondering howtotakefull advantageofthesebenefits,knowingthatthesearebigdecisionswhichcanhaveasignificantlong-termimpact.

Thisguideisintended toprovideyouwiththebasicsaboutemployeebenefitssoyou areabletomoreeasilyunderstandwhat your employer is offering you.

HealthInsuranceBasics

HowDoesHealthInsuranceWork?

Health insurance is an arrangement with an insurance company that can help protect you from the high costs of health care. At its most basic, you pay premiums and the insurance company agrees to pay part of your medical expenses for illnesses or injuries, prescription drugs and preventive care.

Healthinsuranceworksbyspreadingthecostofcareamonglargegroupsofpeople—soinsurancepaidbyonepersonhelpspayforthecareofothers.Inalargeenoughgroup,mostpeoplearehealthyandusefewhealthservicesinagivenyear.Aminorityofindividualsaccountforthemajorityofhealthcarespendingforthegroup.Becauseitislikelythateverypersonwill,atsomepoint,getsick,beinjuredorevenbecomedisabled,sharingthisriskisacriticalpartofinsurance.

Inadditiontospreadingfinancialrisk,healthinsurancehasanotherimportantfunction:improvingaccesstohealthcareservices.In general, doctorsandhospitalsaremorelikelytocareforpeoplewhentheyknowtheywillbepaid.Numerousstudieshaveshownthatpeoplewithouthealthinsurancereceivefarfewerhealthservices(ordelayneededhealthcare)comparedtoinsuredpeople.Healthinsurancenotonlyprotectsindividualsfromcatastrophicexpenses,italsoimprovesaccesstoimportantroutine,preventiveandprimarycareservices.

Thereareseveraldifferenttypesofhealthinsurance that providearangeofcoverageformedicalexpenses.Expensesvarybasedonhow much coverage someone signs up for and the number of family members he or she decides to cover.Sometypesofinsuranceallowindividualstosetasidepre-taxincomeforuseatalaterdate.

Dependingonthetypeofhealthinsurancecoverage,eithertheindividualpayscostsoutofpocketandisthenreimbursed,ortheinsurermakespaymentsdirectlytotheprovider.

After every visit to a health care provider, you will get a document called an explanation of benefits (EOB) that shows what your insurance will pay and what your out-of-pocket expenses will be.

Group Health Insurance

Healthinsurancecanbeacquiredinseveralways.Currently,themostcommonwaytoobtaininsuranceisthroughpackagesofferedbyemployers.Thismethodiscalledgrouphealthinsurance.Grouphealthinsuranceoftenleadstolowerratesforthecoveragebecausethefinancialriskisspreadoutovermanypeople,mostofwhomareingoodhealth.

AccordingtoGallup,in2012nearly45percentofAmericanswereinsuredingrouppackagesthroughtheiremployers.AquarterofAmericansobtainedcoveragethroughgovernment-sponsoredprogramslikeMedicaid,Medicare,ormilitaryandveteransbenefits,while11percentwereinsuredthroughothermeans.Nearly17percentofpeoplehadnohealthinsuranceatall.

Individual Health Insurance

Individual health insurance is health coverage that is purchased by an individual or a family that is not tied to a job or a group of policyholders.

HealthInsuranceTerminology

Theworldofhealthinsurancehasmanytermsthatcanbeconfusing.Understandingyourcostsandbenefits—andestimatingthepriceofavisittothedoctor—becomesmucheasieronceyouareabletomakesenseoftheterminology.

Participants

There are a number of participants involved in health insurance. The"provider"isaclinic,hospital,doctor,laboratory,healthcarepractitionerorpharmacy.The“insurer”or“carrier”istheinsurancecompanyprovidingcoverage,the “policyholder” is the individual or entity that has entered into a contractual relationship with the insurance company andthe"insured"isthepersonwiththehealthinsurancecoverage. For individual health insurance, you may be both the policyholder and the insured. For group health insurance, your employer will typically be the policyholder and you will be the insured.

Premium

Apremiumistheamountofmoneychargedbyaninsurancecompanyforcoverage.Thecost ofpremiumsmay bedeterminedbyseveralfactors,includingage,geographicarea,numberofdependentsandtobaccoconsumption.Policyholderspaytheseratesannuallyorinsmallerpaymentsoverthecourseoftheyear,andtheamountmaychangeovertime.Wheninsurancepremiumsarenotpaid,thepolicyistypicallyconsideredvoidandcompanieswillnothonorclaimsagainstit.Withemployergroupinsurance,the employer determines how much of the premium employees will be required to pay for coverage. Yourshare of the premiumsisdeductedfromyourpaycheckbyyouremployer. Employer-based premiums are usually, but not always, deducted before taxes.

PremiumExample

Maryhasgroupinsurancethroughheremployer, with pre-tax premiums.Everypayperiod,her share of the health insurance premiumisdeductedfromherpaycheckbeforetaxesarecalculatedtocoverthecostofherhealthinsurance.

Copayment

Acopayment,orcopay, is a fixed amount you pay for a covered health care service, usually when you get the service. The amount can vary by the type of covered health care service.

CopaymentExample

Sallytakeshersontothepediatricianforabadcough.Shehasacopayof$15atthedoctor’soffice.

CostofVisit: / $200
Sallypays: / $15
Healthplanpays: / $185

Deductible

Adeductibleistheamountyouoweforhealthcareserviceseach year beforetheinsurancecompanybeginstopay.Forexample,ifyourannual deductibleis$1,000,yourplanwon’tpayanythinguntilyou’vemetyour$1,000deductibleforcoveredhealthcareservicesthataresubjecttothedeductible.Thedeductiblemaynotapplytoallservices, such as preventive care services.

Deductiblesareusefulforkeepingthecostofinsurancelow.Theamountvariesbyplan,withlowerdeductiblesgenerallyassociatedwithhigherpremiums.Theyarefairlystandardonmosttypesofhealthcoverage.

DeductibleExample

Johnhasahealthplanwitha$1,000annual deductible.Johnfallsoffhisroofandhastohavethreekneesurgeries,thefirstofwhichis$800.BecauseJohnhasn’tpaidanythingtowardhisdeductibleyetthisyear,andbecausethe$800surgerydoesn’tmeetthedeductible,Johnisresponsiblefor100 percentofhisfirstsurgery.

Coinsurance

Coinsuranceis your share of the costs of a covered health care service calculated as a percent (for example, 20 percent) of the allowed amount for the service. You pay coinsurance plus any deductibles you still owe for a covered health service.

CoinsuranceExample

John’ssecondsurgeryoccursinthesameplanyearashisfirstsurgeryandcostsatotalof$3,200.Becausehehasonlypaid$800towardhis$1,000annualdeductible,Johnwillberesponsibleforthefirst$200ofthesecondsurgery.Afterthat,hehasmethisdeductibleandhiscarrierwillcover80 percentoftheremainingcost,for a total of$2,400.Johnwillstillberesponsiblefor 20 percent, or $600,oftheremainingcost.ThetotalJohnmustpayforhis secondsurgeryis$800.

Out-of-pocketMaximum (OOPM)

Anout-of-pocketmaximumisthemostyoushouldhavetopayforyourhealthcareduringayear,excludingthemonthlypremium.It protects you from very high medical expenses. After you reach the annual out-of-pocket maximum, your health insurance or plan begins to pay 100 percent of the allowed amount for covered health care services or items for the rest of the year.

Somehealthplansdonotcountallofyourout-of-pocketexpenseswhendeterminingtheout-of-pocketmaximum.Forexample,some plansdo not count yourannualdeductible,copayments, coinsurance payments, out-of-network payments or other expenses toward this limit.

Out-of-pocketMaximumExample

John’sthirdsurgeryoccursinthesameplanyearashisfirsttwosurgeriesandcostsatotalof$8,000.John hasalreadymethisdeductible,sohe onlyneedstopaythecoinsuranceonthissurgery,uptothe plan’sout-of-pocketmaximum(OOPM) of $3,000.Without an OOPM, John’s coinsurance total for this surgery would have been $1,600 (20 percent of the $8,000 total), but becauseJohn’s planallowshisdeductibletobecountedtowardhisOOPM,Johnhasalreadyspent$1,600towardshisOOPM on previous health care costs this year. Because of this, he only needstospend$1,400beforehehitshis$3,000OOPM.OncehehitstheOOPM,hisplancoverstheremainingcosts.Therefore,John’s coinsurance total for the third surgery is $1,400—the 20 percent coinsurance cost, up to the $3,000 maximum—and his plan’s total is the remaining $6,600 (on the chart, this is shown as $5,600 before the OOPM, plus $1,000 after John hits his OOPM).

Preventive Care

Preventive care is medical checkups and tests, immunizations and counseling services used to prevent chronic illnesses from occurring. Rather than waiting for a patient to become sick, preventive care aims to keep people healthy, oratleastcatchillnessesattheirearliestandmosttreatablestages.Preventivecareincludespreventiveanddiagnosticservicesperformedbyproviders, such as annual physicals or bi-annual mammograms.Undertheprovisionsofthe Affordable Care Act (ACA), non-grandfathered healthinsurancepoliciesmustcovervariouspreventiveservicesformen,womenandchildrenwithoutsharingthecostfortheseservicesthroughcoinsurance,deductiblesorcopayments.Somehealthplansmayhaveadditionalno-costpreventiveservicesbeyondwhatthelawrequires.

Preventive Care Example

Mary schedules an appointment with her in-network health care provider for an annual physical and bi-annual mammogram. Because Mary is eligible for these preventive services under the ACA’s preventive care coverage guidelines, the total cost of the visit is covered by her health insurance.

Cost of Physical / $200
CostofMammogram / $200
Mary Pays / $0
Health Plan Pays / $400

OtherTerminology

EssentialHealthBenefits

Essentialhealthbenefitsareasetofhealthcareservicecategoriesthat the ACA requires certain plans to cover, beginning in 2014. The plans that must cover essential health benefits includeplans offered in the individual and small group markets and all Medicaid state plans. Essentialhealthbenefitsmustincludeitemsandserviceswithinatleastthefollowing10categories:ambulatorypatientservices;emergencyservices;hospitalization;maternityandnewborncare;mentalhealthandsubstanceusedisorderservices,includingbehavioralhealthtreatment;prescriptiondrugs;rehabilitativeandhabilitativeservicesanddevices;laboratoryservices;preventiveandwellnessservicesandchronicdiseasemanagement;andpediatricservices,includingoralandvisioncare.

AnnualLimit

Theannuallimitisacaponthebenefitsyourinsurancecompanywillpayinagivenyearwhileyou areenrolledinaparticularhealthinsuranceplan.Thesecapsaresometimesplacedonparticularservices,suchasprescriptionsorhospitalizations.Annuallimitsmaybeplacedonthedollaramountofcoveredservicesoronthenumberofvisitsthatwillbecoveredforaparticularservice.Afteranannuallimitisreached,youmustpayallassociatedhealthcarecostsfortherestoftheyear.Beginningin2014,annualdollar limitscannotbeappliedtoa plan’s essentialhealthbenefits.

LifetimeLimit

Thelifetimelimitisacaponthetotallifetimebenefitsyoumaygetfromyourinsurancecompany.Aninsurancecompanymayimposeatotallifetimedollarlimitonbenefits(suchasa$1millionlifetimecap)orlimitsonspecificbenefits(suchasa$200,000lifetimecaponorgantransplants,oronegastricbypassperlifetime)oracombinationofthetwo.Afteralifetimelimitisreached,theinsuranceplanwillnolongerpayforcoveredservices.Under the ACA, insurance companies cannot set a dollar limit on what they spend on essential health benefits for your care during the entire time you are enrolled in that plan.

QualifiedMedicalExpense

QualifiedmedicalexpensesaredefinedbytheIRSasthecostsattachedtothediagnosis,cure,mitigation,treatmentorpreventionofdisease,orforthepurposeofaffectinganystructureorfunctionofthebody.Tobeeligible as qualified medical expenses,theseexpensesmustbetoalleviateorpreventaphysicaldefectorillness.Theycanincludepaymentstoproviders,includingdentistsandoptometrists,and payments for prescriptionandover-the-countermedication.Theydonotincludecosmeticproceduresorexpensesthatareonlybeneficialtogeneralhealth,suchasvitamins.TheIRSpublishesafulllistingofqualifiedmedicalexpenseseveryyear.

Pre-existingCondition

A pre-existing condition is anycondition,eitherphysicalormental,includingadisability,thatoccurredbeforeahealthplanwentintoeffect.Geneticinformation,withoutadiagnosisofadiseaseoracondition,cannotbetreatedasapre-existingcondition,norcanpregnancybeconsideredapre-existingcondition.Beginningin2014,insurerscannotdenycoverageorchargeextratopeoplewithpre-existingconditions,unlessapersoniscoveredbyagrandfathered individual health plan.

GrandfatheredPlans

AgrandfatheredplanisahealthinsuranceplanthatwasineffectbeforetheACAbecamelawandhas basically stayed the same since then.Theycancontinuetoenrollpeopleandoffercoveragewhilemaintainingtheirgrandfatheredstatus. Grandfathered plans are exempt from some of the ACA’s reforms. To find out if your health plan is grandfathered, check your plan’s materials describing benefits.

SummaryofBenefitsandCoverage

Summariesofbenefitsandcoverage(SBC)areeasy-to-readoutlinesthatletyoumakeapples-to-applescomparisonsofcostsandcoveragebetweenhealthplans.Youcancompareoptionsbasedonprice,benefitsandotherfeaturesthatmaybeimportanttoyou.You'llgetanSBCwhenyoushopforcoverageonyourownorthroughyourjob,whenyoureneworchangecoverageorwhenyourequestanSBCfromthehealthinsurancecompany.

HealthCareReform

Congresspassedthe ACA, asignificanthealthcarereformlaw,inMarch2010.TheACAisafar-reachinglawthataffectsallaspectsofthehealthcaresystem.Consumers,healthcareproviders,insurancecompaniesandemployersareallimpacted.Thepartsofthelawthatmostaffectyouaredescribedbelow.

IndividualMandate

Beginningin2014,theACArequiresmostindividualstoobtainacceptablehealthinsurancecoverageforthemselvesandtheirfamilymembersorpayapenalty.Ifyouarecoveredunderahealthplanofferedbyyouremployer,orifyouarecurrentlycoveredbyagovernmentprogramsuchasMedicare,youcancontinuetobecoveredunderthoseprograms.

There is a graduated tax penalty, or fee,for individuals who do not obtain health insurance by the time they file their taxes in 2014. While at first the penalty is fairly modest, it substantially increases over the following two years. In addition to the penalty, people without health insurance will still be responsible for 100 percent of the cost of their medical care. The fee schedule over the next three years is as follows:

Thereareaverylimitednumberofexceptionstotheinsurancemandate,mainlyaffectingnon-citizens,AmericanIndians,incarceratedindividuals,religiousobjectorsandpeoplesufferingfrompovertyorhardship.Exceptionsarealsoavailableforpeoplewithshortgapsincoverageoflessthanthreemonthsandforthoseeligibleforanemployer-providedplanthatoperates on a non-calendar year basis.

HealthInsuranceMarketplaces

TheACAcallsforthecreationofhealthinsurancemarketplaces,alsoknownasAffordableHealthInsuranceExchanges,forindividualsandsmallbusinessestopurchaseprivatehealthinsurance.TheExchanges willallowfordirectcomparisonsofprivatehealthinsuranceoptionsonthebasisofprice,qualityandotherfactors,andwillcoordinateeligibilityforpremiumtaxcreditsandotheraffordabilityprograms.TheACArequirestheExchangestobecomeoperationalin2014,withopenenrollmentsettobeginonOct.1,2013.Ifyoucanpurchasecoveragethroughyouremployer,youmaynotneedtousetheExchanges.However,uninsuredpeoplewhowanttocomplywiththeindividualmandatewillbeabletousetheExchangestofulfilltheirrequirement.

AnnualLimits and Pre-existing Conditions

Asnotedearlier,annualdollar limitscannotbeplacedoncoverageforessentialhealthbenefitsbeginningin2014.Additionally,theACAcompelsinsurerstocoverindividualswithpre-existingconditions.Insurancecompaniescannotturnyoudownorchargeyoumorebecauseofyourcondition,norcantheyrefusetocovertreatmentforpre-existingconditions.Theonlyexceptionisforgrandfatheredindividualhealthinsuranceplans—thekindyoubuyyourself,notthroughanemployer.Ifyouhaveoneoftheseplans,youcanswitchtoan Exchangeplanduringopenenrollmentandgetcoverageforyourcondition.

TypesofHealthInsurancePlans

Besidesterminology,anotherfactorthatmakesunderstandinginsurancedifficultisthenumberofdifferenthealthinsuranceplansavailable,eachwithitsownsetofrules.Thereareanumberofreasonswhythereisn’tjustaone-size-fits-allplan.Forexample,somepeopleneedacertaintypeofplanthatcoversmoreservicesthananotherplan.It’simportanttounderstandthekeydifferencesbetweenplansinordertochoosetheonethat’sbestforyoufromwhatyouremployerisoffering.

Fee-for-servicePlans

Fee-for-serviceplansareastraightforwardtypeofcoverageinwhichinsurerspayforhealthcareservicesprovidedtoplan participants.Withthistypeofcoverage,youcanchooseanydoctoryouwishandchangedoctorsanytimeorgotoanyhospitalinanypartofthecountry.

HealthMaintenanceOrganizations(HMO)

HMOsareatypeofhealthinsuranceplanthatusuallylimitscoveragetocarefromdoctorswhoworkfororcontractwiththeHMO.Premiumsarepaidmonthly,andasmallcopayisdueforeachofficevisitandhospitalstay.HMOsgenerallywon'tcoverout-of-networkcareexceptinanemergency.AnHMOmayrequireyoutoliveorworkinitsserviceareatobeeligibleforcoverage.

HMOsalsorequirethatyouselectaprimarycarephysicianwhoisresponsibleformanagingandcoordinatingallofyourhealthcare.Yourprimarycarephysicianwillprovideallofyourbasichealthcareservices,andmustgiveareferralinorderforyoutoseeaspecialist.

HMOsoftenprovideintegratedcareandfocusonpreventionandwellness.HMOplanssometimesincludedentalandvisioncoverage.

PreferredProviderOrganization(PPO)

PPOsaresimilartoHMOsinthathealthcareprovidersenterintoanagreementwiththeinsurancecompaniestooffersubstantiallydiscountedfeesfor covered health care services.Yourcopayanddeductibleswillalso belowerifyouchooseaproviderthatisinthePPOnetwork.Thepaymentratio (what your insurance company pays compared to what you pay)maybehighforaPPOplan—for example, it could be intherangeof90/10,with90percentofmedicalcostspaidbytheinsurancecompanyand10percentcoveredbytheinsuredafterthecopayanddeductible.

WithaPPO,youdonothavetochooseaprimarycarephysician—youcanchoosedoctors,hospitalsandotherprovidersfromthePPOnetworkorfromoutofnetwork.Ifyouwanttostickwithaparticulardoctororhealthcareproviderthatisoutofnetwork,youareabletodoso,butthecostswillbehigher,generallywitha70/30ratio.

PPOplanstypicallyincludepreventivecare,wellnessprograms,immunizations,well-babycareandmammograms,alongwithregulardoctorvisits,emergencycare,specialisttreatments,X-rays,hospitalstays,surgeryandothermedicalservices.PPOsalsouseamembershipcardinsteadofrequiringmedicalinsuranceclaimformsforpaymentprocessing.

ExclusiveProviderOrganization(EPO)

AnEPOissimilartoaPPOinstructureandoperation,withthemaindifferencebeingthatservicesarecoveredonlyifyougotodoctors,specialistsorhospitalsintheplan’snetwork,althoughthereareexceptionsforemergencies.

PointofServicePlan(POS)

POSplanscombineelementsofbothHMOandPPOplans.LikeanHMOplan,youmayberequiredtodesignateaprimarycarephysicianwhowillthenmakereferralstonetworkspecialistswhenneeded.Dependingontheplan,servicesrenderedbyyourprimarycarephysicianaretypicallynotsubjecttoadeductible,andpreventivecarebenefitsareusuallyincluded.LikeaPPOplan,youmayreceivecarefromnon-networkprovidersbutwithgreaterout-of-pocketcosts.

High Deductible Health Plan (HDHP)

HDHPsarehealthplanswithhighdeductiblesandlowpremiums,inwhichtheinsurerwillnotcovermostmedicalexpensesuntilthedeductibleismet.As an exception, preventivecareservicesaretypicallycoveredbefore the deductible is met. Thehighdeductibleprovidesfinancialsecurityformoresevereillnesses.HDHPs are often designed to be compatible with heath savings accounts (HSAs). HSAs are tax-advantaged accounts that can be used to pay for qualified out-of-pocket medical expenses before the HDHP’s deductible is met. These expenses can include copayments and coinsurance.

In2013,for HSA-compatible HDHPs, theminimumdeductibleamountsare$1,250foranindividualand$2,500forafamily,whilethemaximumout-of-pocketexpensesare$6,250foranindividualand$12,500forafamily.

In 2014, for HSA-compatible HDHPs, the minimum deductible amounts remained the same at $1,250 for an individual and $2,500 for a family, while the maximum out-of-pocket expenses increased to $6,350 for an individual and $12,700 for a family.

CafeteriaPlans

Cafeteria plans are benefit programs that help employees pay for certain expenses, such as life insurance, disability benefits, medical expenses and child care, with pre-tax dollars.Employers select the benefits that will be offered (only certain benefits can be provided), and employees use pre-tax dollars to buy the benefits they want. Employers can also make contributions to subsidize benefits. CafeteriaplansarealsoknownasflexiblebenefitplansorIRS125Plans.

Tax-advantaged Health Accounts

There are a few different types of tax-advantaged accounts that help individuals pay for qualified medical expenses. They are often paired with HDHPs. There are specific rules for each type of account, such as how much can be contributed and what the account’s funds can be used for.

HealthSavingsAccount(HSA)

HSAsareavailabletopeoplewhoareenrolledinan HSA-compliant HDHP.Theaccountisemployee-owned,andmoneymaybecontributedbyboththeemployerandemployee.Iftheemployeeleavesthecompany,heorsheremainsincontroloftheaccount.

Thefundscontributedtotheaccountarepre-tax,whichmeanstheyaren'tsubjecttofederalincometaxatthetimeofdeposit.Fundsmustbeusedtopayforqualifiedmedicalexpenses;thereisaheavytaxpenaltyforpayingfornon-qualifiedexpenses.Fundsrolloveryeartoyearifyoudon'tspendthem,andcanaccumulateasignificantbalance.ThereisalimittohowmuchmoneycanbeputintoanHSAeveryyear,butnocaponhowmuchmoneycanbeintheaccount.

Health FlexibleSpendingAccount(FSA)

Health FSAsarearrangementsyousetupthroughyouremployertopayformanyofyourout-of-pocketqualifiedmedicalexpenseswithtax-freedollars.Theseexpensesincludeinsurancecopaymentsanddeductiblesandqualifiedprescriptiondrugs,insulinandmedicaldevices.Youdecidehowmuchofyourpre-taxwagesyouwanttakenoutofyourpaycheckandputintoa healthFSA,but keep in mind that the ACA limits your pre-tax contributions to your health FSA to $2,500 per year.

Also, because your employer owns the health FSA account, it may establish a limit lower than the ACA’s limit for your annual health FSA contributions. Your employer can also establish the types of expenses the health FSA’s funds can be used for.

Unlike an HSA, you do not have to be enrolled in an HDHP to be eligible for a health FSA. You can be enrolled in any health plan (or no health plan) and be eligible for a health FSA. Your employer establishes the health FSA’s eligibility criteria.

FSAs employ a “use-it-or-lose-it” model. If you do not use the funds that you contribute to your limited-purpose FSA within the end of the year, you will have to forfeit those funds. However, employers also have the option of allowing employees to carry over up to $500 of unused funds from one year to the next. In addition, any amount that is carried over does not count toward the maximum contribution limit.

Anotherexceptionis also possibleifyouremployer’shealth FSAplanpermitsyoutouseunusedFSAfundsforexpensesincurredduringagraceperiodofupto2.5monthsaftertheendofthehealth FSAplanyear.

Employers are not required to offer either exception in their health FSA plans, and the two exceptions cannot be combined.

HealthReimbursementArrangement(HRA)

HRAsareemployer-fundedgrouphealthplansfromwhichemployeesarereimbursedtax-freeforqualifiedmedicalexpenses. LikeHSAs,unusedamountsmayberolledovertobeusedinsubsequentyears.UnlikeHSAs,theemployerfundsandownstheaccount.TheemployersetsuptheHRA,determinestheamountofmoneyavailableineachemployee’sHRAforthecoverageperiodandestablishesthetypesofexpensesthefundscanbeusedfor.

Unlike an HSA, you do not have to be enrolled in an HDHP to be eligible for an HRA. You can be enrolled in any health plan (or no health plan) and be eligible for an HRA. Your employer establishes the HRA’s eligibility criteria.

VoluntaryBenefitsandOtherTypesofInsurance

Voluntarybenefitsarebenefitsthatemployeesmaychoosetotake advantage of throughtheiremployers atratesthatarelowerthantheycouldgetontheirown.Afewexamplesoftraditionalvoluntarybenefitsaredental,vision,life,disability,supplementalhealthandcancerinsurance.

Manyemployersoffervoluntarybenefitsbecausetheycanprovideamorerobustbenefitspackageatlittletonocost.

PrescriptionInsurance

Prescriptioninsurance,sometimescalledprescriptiondrugcoverage,helpspayforprescriptiondrugsandmedications.Prescriptioninsuranceisoftenofferedaspartalargerhealthinsuranceplan,thoughthisisnotalwaysthecase.Stand-aloneindividualprescriptioninsurancemay beavailableforpeoplewhoarenotofferedprescriptiondrugcoverageorwhohavenohealthinsurance.Eligibilityforspecificmedicationsandthecostofinsurancevariesamonghealthplans.

DentalInsurance

Dentalinsurancehelpspayfordentalcareandusuallyincludesregularcheckups,cleanings,X-raysandcertainservicesrequiredtopromotegeneraldentalhealth.Someplanswillprovidebroadercoveragethanothers,andsomewillrequireagreaterfinancialcontributionfrom youwhenservicesarerendered.Someplansmayalsoprovidecoverageforcertaintypesoforalsurgery,dentalimplantsororthodontia.

VisionInsurance

Visioninsuranceentitlesyoutospecificeyecarebenefitsdefinedinthepolicy.Visioninsurancepoliciestypicallycoverroutineeyeexamsandotherprocedures,andprovidespecifieddollaramountsordiscountsforthepurchaseofeyeglassesandcontactlenses.Somevisioninsurancepoliciesalsoofferdiscountsonrefractivesurgery.

LifeInsurance

Lifeinsuranceprotectsagainstfinancialhardshipafterthedeathoftheinsuredbypayingoutalumpsumtobeneficiariesuponthe insured’sdeath.Termlifeinsuranceofferspoliciesthatcoverasetperiodoftime,whilepermanentlife insurance,suchaswholeanduniversallife,provideslifetimecoverage.Deathbenefitsfromalltypesoflifeinsurancearegenerallyfreefromincometax.

DisabilityInsurance

Disabilityinsuranceprotectstheinsuredagainstdisability.Withdisabilityinsurance,youareawardedadisabilitybenefitasapartialreplacementofincomelostduetoillnessorinjury.

Therearetwotypesofdisabilityinsurance:short-termandlong-term.Short-termdisabilityinsurance(STD)helpsyouremainfinanciallystableif youbecomeinjuredorillandcannotwork.Usually,STDcoveragebeginswithinoneto15daysoftheeventthat caused yourdisability.Thecoverageallowsyoutocontinuetoreceivepayatafixedweeklyamountorasetpercentageofyourincome.Thebenefitscanlastupto52weeks,althoughtheamountoftimeyoureceiveSTDbenefitsvariesbetweenspecificplans.WhenthisSTDcoverageends,long-termdisability(LTD)coveragetypicallytakeseffect.

LTDinsuranceprotectsworkersiftheybecomedisabledforaprolongedperiodpriortoretirement.LTDpoliciesareoftenofferedthroughemployersaspartofastandardbenefitspackage.ThelengthofLTDplansvaries—somemaybelimitedtoaperiodbetweentwoand10years,whileotherplanscontinuepayingoutuntilage65.

RetirementBenefits

Retirementbenefitsareamountspaidbyanemployertoaformeremployeeorbeneficiaryaftertheemploymentendsasrequiredunderawrittenretirementplan.

Therearetwomajortypesofretirementplans.

Adefinedbenefitplan,fundedbytheemployer,promisesyouaspecificmonthlybenefitatretirement.Theplanmaystatethispromisedbenefitasanexactdollaramount,suchas$100permonthatretirement.Or,moreoften,itmaycalculateyourbenefitthroughaformulathatincludesfactorssuchasyoursalary,yourageandthenumberofyearsyouworkedatthecompany.Forexample,yourpensionbenefitmightbeequalto1percentofyouraveragesalaryforthelastfiveyearsofemploymentmultipliedbyyourtotalyearsofservice.

Adefinedcontributionplan,ontheotherhand,doesnotpromiseyouaspecificbenefitamountatretirement.Instead,youand/oryouremployercontributemoneytoyourindividualaccount.Inmanycases,youareresponsibleforchoosinghowthesecontributionsareinvestedandfordecidinghowmuchtocontributefromyourpaycheck.Youremployermayaddtoyouraccount,sometimesbymatchingacertainpercentageofyourcontributions.Thevalueofyouraccountdependsonhowmuchiscontributedandhowwelltheinvestmentsperform.Atretirement,youreceivethebalanceinyouraccount,reflectingthecontributions,investmentgainsorlossesandanyfeeschargedagainstyouraccount.TraditionalandRoth401(k)plansarepopulartypesofdefinedcontributionplans.

Themaindifferencebetweenatraditional401(k)andaRoth401(k)ishowthemoneyistaxed.UnderRoth401(k)plans,youcontributemoneythathasalreadybeentaxed.Thenwhenyouare59½orolder,moneyyoutakeoutoftheaccount—andwhateverinterestthemoneyhasearned—istax-free,regardlessofhowlongagoyouinvestedthemoneyorhowlargeyouraccountgrew.

Contributionstotraditional401(k)plansaresubtractedfromyourtaxableincome,meaningthatyoudon’tpaytaxesonthemoneybeforeyouputitintoyouraccount.Thisalsolowersyouryearlytaxburden,andallowsforlargeinitialinvestments.However,youwillhavetopaytaxesonmoneyyouwithdrawfromtheaccount.

Therearealotofadditionaldifferencesandregulationsinvolvingretirementaccounts,sotaketimetofamiliarizeyourselfwiththembeforemakinganydecisionsaboutyourretirementbenefits.

Non-traditionalBenefits

Non-traditional benefits are types of bonus compensation offered outside of standard benefit packages. They can vary widely between companies and may include perks like tuition reimbursement, adoption assistance, counseling services, telecommuting, and flexible hours and work weeks, as well as offering on-site facilities such as fitness centers or dry cleaning services.

Tax-Advantaged Health Accounts 15

TableofContents

Introduction...... 3

HealthInsuranceBasics...... 4

HealthCareReform...... 11

TypesofHealthInsurancePlans...... 13