What each one does.
Section 125 pre-tax premiums
The simplest win, and the most commonly skipped.
A Section 125 plan lets employees pay their share of premium with pre-tax dollars. Employees take home more for the same coverage, and the employer’s payroll tax base drops because FICA is calculated after the deduction. It requires a written plan document, which is exactly the piece employers most often do not have.
Health savings accounts (HSA)
Employee-owned, triple tax-advantaged, portable.
Paired with a qualified high-deductible health plan, an HSA lets employees contribute pre-tax, grow the balance tax-free and withdraw tax-free for qualified medical expenses. The account belongs to the employee and travels with them. Employers can contribute too, which is often a cheaper way to improve a package than buying down the deductible.
Health reimbursement arrangements (HRA)
Employer-funded, employer-controlled.
The employer funds an account and defines what it reimburses. Because it is employer-owned, unused funds generally stay with the business. Useful for offsetting a high deductible without permanently raising premium, and for employers who want to control exactly which expenses get covered.
The pairing that does the most work.
The combination we set up most often is a qualified high-deductible plan, an HSA, and an employer contribution into that HSA. The company’s premium drops because the deductible is higher; part of the saving goes into employees’ accounts; and the money the employer puts in is visible in a way a lower deductible never is.
The failure mode is predictable: a high-deductible plan introduced with no explanation and no funding, which employees experience as a benefit cut. The plan design and the education have to arrive together, which is why we treat enrollment meetings as part of the work rather than an afterthought.
Tax treatment depends on your circumstances. We will set the plans up and explain how they work; confirm the tax specifics with your CPA.
Pre-tax accounts, answered.
Do we need a plan document for pre-tax deductions?
Yes. Deducting employee premium contributions pre-tax requires a written Section 125 plan document. A surprising number of employers have been running pre-tax deductions for years without one. Setting it up is straightforward.
What is the difference between an HSA and an HRA?
An HSA belongs to the employee, requires a qualified high-deductible plan, and goes with them when they leave. An HRA is funded and owned by the employer, has no high-deductible requirement, and unused funds generally stay with the business. Different tools for different goals.
Can we contribute to employee HSAs?
Yes, and it is often a more efficient way to improve a benefits package than buying down the deductible. Employer contributions count toward the annual limit, so they need to be coordinated with what employees are contributing themselves.
Does an FSA make sense for us?
Sometimes. A flexible spending account allows pre-tax dollars for medical or dependent care expenses but carries use-it-or-lose-it rules that make employees cautious. For groups on a high-deductible plan an HSA is usually the better fit; for groups on a traditional plan an FSA can still earn its place.
The rest of the administration.
Lower the cost without cutting the plan.
Pre-tax structures often save more than the next round of plan-design cuts would.