Health plans offer hefty discounts and coverage for medical expenses. But what about the costs that you still have to pay out-of-pocket, like the deductible, or the coinsurance? Waters offers four special accounts you can use to save money to pay for those remaining medical expenses (Though the specific accounts you’re eligible for will depend on a few factors, including whether you enroll in a Waters medical plan, and – if you have a spouse or partner – the type of medical plan they are enrolled in, and what kind of spending account they contribute to, if any.)
Here are the options you have available:
- Health Savings Account (HSA)
- Health Retirement Account (HRA,or Aetna HealthFund Account)
- General Purpose Health Flexible Spending Account (FSA)
- Limited Purpose Health Flexible Spending Account (Limited FSA)
The HSA is available with both of Waters High Deductible Medical Plans. However, if you are not eligible for the HSA, per IRS guidelines, you will still be able to have an Aetna HealthFund account with Waters, which is the name for the Health Reimbursement Account, or HRA. The Copay and Deductible Medical Plan is not eligible for either the HSA or HRA.
We’ll go over the full list of compatible account combinations below, after we run through the details of each account.
Health Savings Account (HSA)
An HSA is a powerful savings tool: not just for health expenses, but also for retirement.
First of all, it’s your account. It doesn’t matter how long you stay at Waters, or where you go next. The account stays with you. And the money in it has THREE tax advantages:
- It isn’t taxed going in! Your contribution to the account is taken from your paycheck, before federal taxes are calculated. That can save you between 15% and 30% in taxes.
- It isn’t taxed while it earns interest in your account! Most investments are taxed every year, leaving you less to invest the year after. But the money in an HSA account isn’t taxed until you take it out. (Any money in the account earns interest. And once you contribute over a certain amount – $500, for your plan – you can choose to invest that money in Fidelity’s mutual funds.)
- It isn’t taxed if you take it out to pay for medical expenses! It doesn’t matter when you take it out: in 6 days, or 60 years. As long as it’s used to pay for qualified medical expenses, you can use it tax-free.
If that weren’t enough, you can withdraw the funds when you reach retirement age and use the money in any way you want. Currently, that age is 65. (When you withdraw cash after retirement, and it isn’t for health care, the cash is taxed as regular income.)
Not just anyone can enroll in an HSA. If you enroll in the Copay and Deductible medical plan, you are not eligible for an HSA or HRA. If you will be covered on one of the other two medical plans, which are HSA eligible, it is your responsibility to determine whether you qualify for an HSA Account, under the IRS rules. For example, in accordance with IRS regulations, to sign up for and participate in an HSA Account, you must not have access to funds in a General Purpose Health Care Flexible Spending Account (you or your spouse’s). You must be enrolled in a qualified high deductible health plan (both of Waters deductible HSA eligible medical plans are), have no other health coverage (including Medicare or Medicaid), and you cannot be claimed as a dependent on someone else’s tax return. (See the HSA regulations set by the IRS here: https://www.irs.gov/publications/p969/ar02.html#en_US_2015_publink1000204025.)
Depending on which plan you choose, you could have the option to choose the HSA or the HRA.
Even if you are eligible for an HSA, you will have the option of enrolling in an HRA (or Aetna HealthFund Account, which we will go over below) with an optional General Purpose Health Flexible Spending Account (or FSA) instead.
If you need access to those funds at the beginning of the year to help with big out-of-pocket costs that you don’t have saved up in your HSA, or you can’t go on a payment plan for—say, for example, an expensive prescription you need to purchase in January—this option is there to help you.
If you don’t need early access to those funds, or if you already have the money saved up in your current HSA, you may be better off with an HSA. HSAs let you keep your contributions year over year, and may let you take advantage of a few other benefits that an HRA-FSA combo wouldn’t.
You can find the HRA (Aetna HealthFund Account) regulations set by the IRS here: https://www.irs.gov/publications/p969/ar02.html#en_US_2015_publink1000204194.
Like I mentioned before, funds in an HSA can be withdrawn without penalty in two ways:
- Tax-free, to pay for qualified medical, prescription, dental, and vision expenses. Now, when I say qualified expenses, there’s a pretty strict list. (“Needing” to go on a cruise to lower your stress won’t make the cut.)
- Taxed as normal income, if withdrawn during retirement for non-health-related reasons.
To see a list of qualified expenses, take a look at the HSA summary on Fidelity’s NetBenefits site at 401k.com, or go to the actual creator of the list, the IRS.gov, Publication 502.
You’ll also have to be careful of WHO you spend the funds on. You can’t use your HSA account to pay for the expenses for non-tax-eligible dependents. These may include:
- Domestic partners
- Tax-independent children under 26
- Divorced or legally separated spouses
- Your grandchild or your partner’s grandchild (unless you are the legal guardian of the grandchild)
If you withdraw the funds without following the rules above, you’ll pay income tax on the amount you withdraw, as well as a 20% penalty fee (if under 65 years of age).
Now, if you do enroll in an HSA, there are other accounts you cannot enroll in. As I’ll lay out later on when I talk about account compatibility, if you have an HSA, you cannot have an HRA (Health Reimbursement Account, also known as an Aetna HealthFund Account), or a General Purpose Health FSA. You can only combine an HSA with a Limited Purpose Health FSA. Limited Purpose Health FSAs can be used for dental and vision expenses, so you don’t have to use up your HSA for those, and instead save your HSA for medical & prescription, and even save as much of your HSA as possible for later years, even for retirement. Per IRS rules, even if your spouse has their own General Purpose Health FSA, you can NOT have an HSA Account.
Here’s how money gets deposited into an HSA:
- First, after you enroll in a Waters eligible High Deductible Health Plan and you elect to contribute to an HSA, go to www.401k.com to complete the opening of your new HSA account, if you don’t already have an account open. (You can do this immediately after completing enrollment.)
- Waters takes it out of your paycheck, pre-tax, on your behalf (and you can change the amount you contribute at any time during the year).
- You deposit money into your account, post-tax. You can then claim it as non-taxable when you complete your taxes.
There are yearly limits to how much you and Waters may contribute to the account each year, per the IRS.
This year, the limits are:
- As an individual: 3,650
- As a family: 7,300 (The IRS considers it family coverage if you cover at least one other person besides yourself on your medical plan.)
And if you happen to be 55 or older in this year, you can deposit an extra $1,000 in catch-up contributions. (Even if you turn 55 on December 31st, you can still add that extra $1,000 during the year.)
How to Pay Qualified Expenses Using Your Health Savings Account
There are three ways:
- You use your Fidelity HSA Account Debit Card.
- You pay the expenses yourself and then reimburse yourself by linking your personal bank account with your Fidelity account and electronically transfering the exact amount for reimbursement.
- You send money from your HSA directly to the provider, using the claim sync-up feature called “Track and Pay.” This feature is offered to you by Fidelity, on 401k.com, after you complete your HSA account setup on that web site. (You’ll set up the account after you first elect to contribute money to an HSA account on WatersBenefitsNow.com.)
Just remember, if you use the debit card or reimburse yourself, it’s your responsibility to ensure that you are only using your HSA Account to pay for IRS qualified eligible expenses – otherwise you have a tax violation that you will have to address if you are audited by the IRS.
A note about Plan Administration…
You will be able to see and manage your HSA Account with the same phone number and web site you’ll use for your Waters 401(k), or any Waters Equity Plans.
Three advantages to having your HSA with Fidelity:
- A clear and simple tool to pay your eligible health expenses, straight from your HSA Account (on 401k.com)
- Easy access to all of Fidelity’s mutual funds, to invest your HSA account money (once your account balance is $500 or more)
- Enhanced consultative help and assistance to manage your HSA, with Fidelity certified representatives–as you have come to experience with Fidelity’s 401(k) service.
As an HSA member, you’ll be able to access your HSA by going directly to 401k.com, which will also include your HSA Account, in addition to your Waters 401(k) Account, and any additional Fidelity accounts you might have.
Health Reimbursement Account (HRA)
An HRA (Health Reimbursement Account, also known as an Aetna HealthFund Account) is an account, funded by your employer, to help you pay your health expenses during the year.
An HRA (Aetna HealthFund Account) is 100% tax-free money you can use to pay qualified medical and prescription expenses during the year. It’s tax-free because the money isn’t technically yours: it belongs to Waters. It can help to think of it as a corporate expense account. Waters contributes into the account during the year.
Money you don’t spend during the year will automatically roll over to the next year, up to the plan’s annual deductible amount, if you remain in the HRA (Aetna HealthFund Account) in the following calendar year. (Not all companies allow HRA funds to roll over from year-to-year, but Waters does.)
If you enroll in the Copay and Deductible Medical Plan, you are not eligible for an HSA or an HRA. If you enroll in one of Waters other medical plans, you are eligible for an HSA or an HRA. If you choose the HSA, you can not also have an HRA. See the HSA section above for more details on the HSA. The money in an HRA (Aetna HealthFund Account) can only be used to pay for qualified health expenses. Just remember that there are already rules to determine what is and is not a qualified expense. To see a list of qualified expenses, take a look at the IRS rules on their web site: https://www.irs.gov/publications/p969/ar02.html#en_US_2015_publink1000204194.
If you enroll in an HRA (Aetna HealthFund Account), you can enroll in a General Purpose Health FSA, or a Limited Purpose Health FSA. (I’ll go cover this in more detail in the account compatibility section, further down.)
When it comes to HRAs, only your employer can add funds to the account.
How to Pay Qualified Expenses
Aetna will automatically pay the provider directly (when they are submitted in an insurance claim by the provider).
One of the primary advantages of an HSA is that the money in the account is yours. No matter whether you switch plans or leave the company, the money in your HSA account remains with you. That’s a strong factor behind Waters’ push to make all plans HSA compatible, and to provide hefty contributions to those accounts, on your behalf.
An HRA (Aetna HealthFund Account), on the other hand, is more of specialized expense account. The money in it is available to you during the year, but it doesn’t belong to you. And, legally, leaving an HRA (Aetna HealthFund Account) means losing access to those funds.
General Purpose Health Flexible Spending Account (FSA)
Flexible Spending Account
A General Purpose Health FSA is an account, funded by money taken out of your paycheck (before federal taxes), to help you pay your health expenses during the year.
Money you set aside in an FSA isn’t taxed by the federal government. You can then use this money, tax free, to pay for qualified health expenses during the year.
The amount you’ll put in an FSA over the course the year is decided when you enroll. And even though the funds are taken out of your paycheck in smaller increments, the entire amount you’ve decided to contribute will be available to you to pay for health expenses, day 1.
Jun doesn’t qualify for an HSA, and so he decides to enroll in an FSA instead. He expects to pay about $900 in out-of-pocket medical, prescription, dental, and vision costs during the year, so he chooses to contribute that same amount to his FSA.
Jun’s contribution to his FSA is spread out over the year, across all his paychecks. Since Jun gets paid 26 times per year (biweekly), his per-paycheck contribution to his FSA is $34.62.
February rolls around, and Jun is purchasing his new eye glasses. After all is said and done, Jun has $300 to pay toward his new glasses.
Jun is only 3 paychecks into the year, so he’s only contributed $103.86 to his FSA. But that doesn’t matter. He can immediately use any amount, up to the full $900 annual amount he elected when he enrolled.
Because of that, Jun is able to pay the entire $300 bill with his FSA account – and he still has $600 remaining to help pay for any other vision, dental, or medical expenses he might incur the rest of the year.
The money in a General Purpose Health FSA can only be used to pay for qualified medical, prescription, dental, and vision expenses. Like with all other spending accounts, there are specific rules to determine what is and is not a qualified expense. To see a list of qualified expenses, take a look at this IRS page: http://www.irs.gov/publications/p502/ar02.html#en_US_2013_publink1000178885.
(Note that the rules for FSAs changed a few years ago, and over-the-counter drugs can no longer be paid for with FSA funds, without a prescription.)
When you sign up for an FSA, you’ll declare an amount to contribute. Once you’ve enrolled, there is no way to change that contribution amount for the rest of year. (The exception being a special enrollment for a life event, which might allow for a change, depending on the life event.)
The rules around unspent funds in an FSA vary from employer to employer. As a Waters employee, some unspent funds in your flexible spending account may roll over to the next year’s FSA, but there are rules:
- You must re-enroll in the Waters FSA the next year.
- Up to $500 will automatically roll into the upcoming year – any funds beyond that are lost. (An FSA is not meant to be a long-term savings plan.)
So if you do enroll in an FSA, think carefully about how much to contribute. (There are tools to help you plan for your expenses next year.)
Keep in mind, you cannot enroll in a General Purpose Health FSA if you or your spouse are enrolled in a high-deductible health plan with an HSA Account, or if you are enrolled in a Limited Purpose Health FSA.
You CAN enroll in a General Purpose Health FSA if you are enrolled in an HRA (Aetna HealthFund Account)- however, you don’t NEED to be. You can enroll in a General Purpose Health FSA all by itself. Even if you waive medical insurance, you can still enroll in a General Purpose Health FSA.
Funds are deducted, pre-tax, from your paycheck. You set the total amount at the beginning of the year, when you enroll, and then that total amount is divided between your paychecks.
You may elect to contribute up to into a General Purpose Health FSA over the course of the year. (The amount is the same for individuals and families.)
How to Pay for Qualified Expenses
There are two ways to pay with your FSA:
- With your PayFlex debit card, issued from PayFlex
- You pay the expenses yourself and get reimbursed by either:
For further details, contact PayFlex at: www.payflex.com, or 844-729-3539 (TTY: 711).
Limited Purpose Health Flexible Spending Account (Limited Health FSA)
A Limited Health FSA is exactly like a General Purpose Health FSA, except:
- Per the IRS, the funds are limited to dental and vision expenses, only.
- A Limited Health FSA is compatible with an HSA. A General Purpose Health FSA is NOT compatible with an HSA.
The PayFlex Debit Card
The PayFlex debit card works just like a debit card for a checking account. You use it when paying for qualified health expenses, and the funds are directly withdrawn from your spending account (be it a General Purpose Health FSA or a Limited Purpose Health FSA).
You get one card at initial enrollment. (To get extras, call PayFlex at 844-729-3539 (TTY: 711). You can also call that number for other help, including details on when, where, and how you can use the card.)
If you’re a new FSA enrollee, in either the General Purpose or Limited Purpose Health Care FSA, you’ll receive a PayFlex Card activated with the balance you elected.
Certain accounts can only be paired with certain medical plans, and with certain other savings accounts. Here’s how it all breaks down:
If you enroll in one of Waters medical plans and open an HSA account, you have the option to enroll in the following combination of spending accounts:
- A Health Savings Account only
- A Health Savings Account and a Limited Health FSA
If you do not enroll in an HSA Account, you have the option to enroll in the following combination of spending accounts:
- A Health Reimbursement Account only
- A Health Reimbursement Account and a General Purpose Health FSA
- Health Reimbursement Account and a Limited Purpose Health FSA*
- FYI: The new Copay and Deductible Plan is only eligible for an FSA, not an HSA or HRA.
*In most cases, you wouldn’t enroll in a Limited Purpose Health FSA unless you had to. A General Purpose Health FSA covers everything a Limited Purpose Health FSA covers, and more. HOWEVER, if your spouse or partner is enrolled in a High-Deductible Health Plan with a Health Savings Account (either through their own employer, or some other means), you cannot enroll in a General Purpose Health FSA. A Limited Purpose Health FSA is your only option at that point.
For further details, contact PayFlex at: www.payflex.com, or 844-729-3539 (TTY: 711).