...continued from Vision Benefits Within Defined Contribution Plans, page 2

With a Health Reimbursement Arrangement (HRA), you can cover vision benefits and other health-related expenses with pre-tax dollars that also can be used to pay for your regular health insurance premiums. A Health Savings Account (HSA) can be set up when you also have regular health insurance with a high deductible.

In the case of a Health Reimbursement Arrangement (HRA), your employer will:

• sponsor a menu of employee benefits, similar to those listed under the cafeteria plan, that you can choose from.
• deposit a certain amount of your pre-taxed salary (employer contribution) in an HRA.

An HRA is an account set up to reimburse only qualified health care expenses. The money in the account is a portion of your pre-taxed salary that your employer credits to the account either in one lump sum at the beginning of the year or on a monthly basis. It does not accrue interest.

You can withdraw HRA funds at any time to reimburse qualified medical expenses, even if your account has not yet been credited with sufficient funds. You do not have to pay a penalty or income taxes on the withdrawal.

Unlike an FSA, qualified expenses include health insurance premiums and the cost of preventive care, such as routine eye examinations. In addition, HRA funds can be carried over from year to year. In other words, if you don't use it, you don't lose it.

If your medical costs exceed the amount of money your employer has promised to credit to your account in a given year, you must pay the overage out-of-pocket.

Your employer may impose restrictions on your HRA. For example, you may be required to purchase a high-deductible health insurance plan. The deductible would, of course, be eligible for reimbursement from the HRA. In addition, this would put you in a position to open a Health Savings Account (HSA).

A Health Savings Account (HSA) is an account into which you and/or your employer can deposit a limited amount of money per year to cover the cost of your future health care expenses. The amount of deposit may be no more than the amount of your health-plan deductible. An HSA can be opened at a bank or other kind of financial institution and accrues tax-free interest.

To qualify for an HSA:

• You must purchase a qualified, high-deductible health insurance policy. The health insurance policy may be one offered by your employer or one you purchase on your own. The deductible must be at least $1,050 for an individual or $2,100 for a family and apply to every medical service covered by the policy.
   
  Typically, a high-deductible health insurance policy should charge a low premium. But check this out carefully, because premiums may not be as low as you might expect. The amount of the premium you pay does not count toward your deductible. Wellness benefits such as vision and dental care are permitted.
   

• You must not incur out-of-pocket medical expenses exceeding $5,250 for an individual and $10,500 for a family. Out-of-pocket expenses include the health insurance policy deductible, co-pays, co-insurance, and others.
   
  It is important to note that, if you already have an HSA account and you experience a period during which your medical expenses exceed the allowed amount, you will not lose your HSA account. You and/or your employer simply will be restricted from making deposits to your HSA.
   
• You must not be on Medicare.
   
• You must not be a dependent on anyone else's tax return.

You can withdraw HSA funds at any time, without penalty or taxation, to pay for medical expenses that are not covered by your health insurance policy and for medical expenses you incur during periods of unemployment or after retirement. Medical expenses include preventive care such as routine eye examinations.

In addition, you may withdraw funds from your HSA for other purposes than medical services. However, when you do so, you will be required to pay income tax and a 10 percent penalty on the amount of the withdrawal.

When you begin Medicare coverage, you can no longer contribute money to your HSA, but you still can maintain the account and use it for medical expenses that exceed your Medicare coverage.

Your employer benefits when you open an HSA account because it reduces payroll tax costs and health benefit costs.