Health Insurance Ideas

Section 125: Premium Offset Plans and Flexible Spending Accounts

Premium Offset Plans:
When a company adopts a Section 125 Premium Offset Plan employees may pay their group health and dental insurance premiums on a pre-tax basis. The employee avoids paying federal income tax, FICA tax, and state income tax on their contribution. The employer also saves money on the matching FICA tax for every benefit dollar deducted pre-tax.

Flexible Spending Accounts:
By enrolling in a flexible spending account, employees are able to pay for eligible out-of-pocket medical and dental expenses on a pre-tax basis, with deductions taken directly from salary. These deductions reduce an employee’s gross income on his/her Form W-2 for federal and Social Security tax purposes. The employee saves federal, state, and FICA taxes on the amount of funds from his/her pay. The employer saves on the matching FICA. Our administrator provides plan activity and status reports on a periodic basis to both the employee and the employer. Furthermore, an employee may check his/her account balance “on line” through our administrator’s web site.

Flex Card:
Employees can pay for eligible expenses with a debit card. The card is linked through the Mastercard network directly to our administrator. Hence, employees do not have to submit a paper claim for all of their reimbursements.

Section 105: Health Reimbursement Accounts

The employer installs a high deductible medical insurance plan to save money on premiums. The employer may decide to use some of the savings to help employees pay for the higher deductible. The Health Reimbursement Account is the funding mechanism that the employer uses to pay for eligible medical expenses submitted by employees. The financial logic behind this approach is that the employer is counting on the total cost of the lower premiums with the high deductible plan plus claims payments will be less than what the employer would have paid with the richer, low deductible medical plan. This plan also has the Flex Card technology.

Health Savings Accounts

Similar to a Section 105 Health Reimbursement Account, the Health Savings Account requires an employer to install a high deductible medical insurance plan. An individual policy must have a minimum annual deductible of $1,000 and a maximum out of pocket expense of $5,000. A family policy must have a minimum annual deductible of $2,000 and a maximum out of pocket expense of $10,000. Both the employer and the employee may contribute money to the HSA. Contributions by the employee are tax deductible. Employer contributions to an HSA are not included in the individual’s taxable income. Amounts distributed are not taxable as long as they are used to pay for qualified medical expenses. Amounts distributed which are not used to pay for qualified medical expenses will be taxable plus an additional 10% tax will be applied to prevent the use of the HSA for non-medical purposes. Unused contributions rollover from year to year and are not lost when an employee moves from one employer to another. More Information

Family Health Budget Planner

A step-by-step questionnaire to help you calculate medical expenses is available at www.familyhealthbudget.com.