This is the sixth in a series in which Penn State Employee Benefits staff explain key concepts, terms and processes to help faculty and staff better understand and use their health benefits.
For many Penn Staters, anticipated out-of-pocket costs for medical care are a prime consideration when selecting one of Penn State’s health plans. While some employees may believe that they do not have much control over medical spending beyond the type of plan they choose, there are ways, in the form of savings vehicles, to effectively lower the costs that one has to pay for medical care. These savings vehicles, the Health Savings Account (HSA) and the Flexible Spending Account (FSA), allow Penn Staters to set aside pre-tax funds to pay the fees associated with medical care.
HSAs and FSAs provide the opportunity to pay for medical expenses with funds that have not been subject to federal, state, local, and Social Security (FICA) taxes, which can result in substantial savings. For example, an employee whose salary is in the 15 percent federal income tax bracket and who contributes $50 per month to one of these accounts will save $325 per year by paying for medical expenses with monies from the account. The savings are even greater for employees in higher income-tax brackets. Funds for these accounts are automatically deducted from the employee’s paycheck and deposited directly to the account that has been selected by the employee.
While most people use HSAs and FSAs to pay for medical costs associated with deductibles, co-insurance and co-pays for themselves and for their insured family members, the use of the funds is not limited to expenses related to what one would think of as a “typical” medical service. For example, expenses for dental and vison services, such as office visit deductibles and co-pays, eyeglasses, root canals and orthodontia may also be paid for with funds from one of these accounts, as well as travel expenses to and from a provider, hotel expenses if a person need to travel far for a specific medical procedure or therapy, certain types of services like acupuncture, and a few over-the-counter preparations, like contact lens solution. In order to be paid for with pre-tax dollars, medical expenses must be on a list of qualifying expenses which may be found at http://hcet.ebia.com/hmrk .
Following are the options available for participants in each plan:
Health Savings Account: As a Qualified High Deductible Plan, the PPO Savings plan carries with it a Health Savings Account (HSA), which is administered by Bank of America. Plan members may elect the amount they would like to have deducted from their paycheck each pay period and deposited into their account. In addition, for each of 2014 and 2015, plan members received from Penn State a one-time distribution to their HSA of $400 for an individual plan and $800 for a family plan. Under IRS regulations, the maximum HSA contribution in 2015 for a person who has elected “Individual” health care coverage is $3,350; the maximum contribution in 2015 for an employee who enrolls in “Family” coverage is $6,550. This limit includes both Penn State’s contribution and the employee’s. The monies in the health savings account roll over from year to year and can be used anytime, even in retirement. The funds are also portable, so employees who leave Penn State may take their account with them. In addition, a person can change their deduction at any time during the year. Individuals who enroll in the PPO Savings plan cannot have any funds in an existing Flexible Spending Account, be receiving Medicare, nor be enrolled in any other health plan while making contributions to an HSA. For more information about Health Savings Accounts, please see the Employee Benefits page of the Office of Human Resources website: http://ohr.psu.edu/benefits/insurance/health/hsa/ .
Flexible Spending Account: Employees who are not in the Penn State PPO Savings plan may put away pre-tax dollars into a Flexible Spending account (FSA). The flexible spending account works much like a Health Savings Account, except that the account “resets” at the end of each plan year, with any remaining monies in the account forfeited by the account holder. In addition, the FSA is not portable for employees who leave the University, including for retirement, and the dollar election cannot be altered at any time throughout the plan year, unless the employee experiences a life-changing event. With this in mind, employees who elect to put away funds in an FSA should have a firm grasp on their annual out-of-pocket medical expenditures. In addition, the entire year’s worth of funds is available to the account holder at the beginning of the plan year, even if the monies have not yet been deposited into the account. Finally, federal laws permit contributions to a healthcare FSA of up to $2500 for the 2015 plan year, and require that the employee “substantiate” any expenditure by submitting a receipt of payment to Highmark, which is the FSA account administrator. For more information about Flexible Spending Accounts, please go to http://ohr.psu.edu/benefits/flexible-spending-accounts/
During the annual benefits open enrollment period, employees are required to elect the amount of money that they would like to deposit to an HSA or and FSA. These elections must be made annually. While FSA participation is optional, any employee who is under the PPO Savings plan will be automatically enrolled in an HSA and any contribution by Penn State will be deposited into the account at the beginning of the plan year. Employees with either type of account will be issued a debit card that can be used by the individual to pay for qualified medical expenses. For more information about how to pay for services using an HSA or FSA debit card, please reference one of the above pages of the Employee Benefits website.