During your Massachusetts divorce (or a post-divorce issue such as a child-support modification), it makes sense to understand your employee benefits, and those of your spouse or former spouse. Interestingly, we find that some people are unfamiliar with their employee benefits, whether it is the various health insurance options or something else. This post covers the basics about Health Savings Accounts (HSA), Flexible Spending Accounts (FSA), and Health Reimbursement Arrangements, or HSA.
All of these accounts fall under the larger umbrella of “consumer-directed health care” and can help pay for medical expenses. Another type of FSA, frequently referred to as a Dependent or Child Care FSA is used to pay – you guessed it – childcare. “Consumer directed” means you manage more of the money you spend—and save—on health care costs. Of course, many of these plans are tied to higher-deductible health insurance plans popular with employers these days.
These plans all have one major characteristic – money is deposited in the accounts tax-free. When used, the funds are also tax-free or tax-deductible when used for qualified medical expenses. By tax-free, this means there is no income tax or FICA (social security and medicare) deducted.
What features makes these plans different?
- The kind of insurance plan they work with;
- Who can put money into the account; and
- Who controls the account.
Health Savings Account – HSA
A health savings account is somewhat similar to a 401(k) retirement account, but it's for medical expenses. You can only have a HSA if you enroll in an HSA-compatible insurance plan. With a HSA, you own the account as opposed to your employer. Most frequently, funds are deposited from an employee's paycheck on a pre-tax basis, but after tax contributions are usually possible, and that money is tax-deductible. With a HSA, money can also roll over from year to year, and a HSA may have an investment component.
Health Reimbursement Arrangement – HRA
A health reimbursement arrangement is a benefit set up by your employer. It's a fund that pays for medical expenses not covered by your health plan, such as deductibles, co-insurance or both. With a HRA, the fund is owned by your employer, and your employer decides which expenses are covered by the HRA. Money given to you for medical expenses is tax-deductible for your employer, but the employee does not have to pay taxes on the funds received for the HRA used for qualified medical expenses. Your employer decides whether leftover money in your HRA can roll over to the next year, and if you should change employers the plan is not portable, so unused funds remain with the employer. Finally, funds in a HRA cannot be invested.
Flexible Spending Account
A flexible spending account is also set up and owned by your employer. The employee gets to decide which qualified medical expenses to pay for with the FSA. With a FSA, you and/or your employer can contribute funds into the account, but only through payroll deduction. Again, the funds are pre-tax contributions. Employers can decide some of the options of the plan, such as whether some amount of funds may be rolled over to the next year. Without this provision, FSA money is a “use it or lose it” benefit. Unused funds revert back to the employer and there is no investment component to a FSA.
Flexible Spending Accounts are set up as a Health Care FSA or a Dependent (Day Care) FSA for childcare expenses.
Divorce Financials – Employee Benefits
When planning your budget and considering options with health insurance and childcare, do not overlook the benefits of these plans. Especially during and after divorces when budgets may be strained due to two having households in the mix, it just makes sense to use all of the tools available.
If you have questions about Massachusetts divorce, including child support, alimony, the division of property, or divorce mediation, then please contact us to schedule an informative consultation at our office in Medfield, Massachusetts.