Plan Design or Compliance Issue	HSAs Health Savings Account	HRAs Health Reimbursement Account	Health FSAs Flexible Spending Account
Internal Revenue Code
Who is Eligible?	Any individual who is covered under an HDHP (as defined in Code § 223), is not entitled to Medicare and cannot be claimed as a tax dependent. With certain exceptions, the individual cannot have any non-HDHP health coverage.	Any employee, subject to employer-designed exclusions. Eligibility may or may not be tied to HDHC. (See note 1 & 3)	Any employee, subject to employer-designed exclusions.
Are self-employed individuals (including sole proprietors, partners in a partnership, and more-than-2% shareholders in a Subchapter S corporation) eligible?	Yes, But they will not be eligible to participate in a cafeteria plan used to fund HSAs in the workplace.	No.	No.
Is funding with cafeteria plan salary reductions permitted?	Yes.	Not for HRA, but it is permitted for HDHC.	Yes.
Can unused amounts be carried over to the next year?	Yes.	Yes.	Generally no, although a plan may be amended to allow a grace period of up to 2-1/2 months during which claims may be incurred.
What medical expenses are eligible for reimbursement?	Otherwise unreimbursed Code § 213(d) medical expenses of account holder, spouse, and dependents incurred after HSA established (See note 2), other than insurance premiums -- (with limited exceptions for COBRA coverage, long term care insurance, health coverage while drawing unemployment compensation and if 65 or older, any health insurance except a Medicare supplemental policy).	Otherwise unreimbursed Code § 213(d) medical expenses incurred while coverage in effect, including premiums for eligible health insurance and long-term care insurance, for employee, spouse and dependents, subject to employer designed limitations. Cannot reimburse qualified long-term care services so ling as the HRA is an FSA.	Otherwise unreimbursed Code § 213(d) medical expenses incurred during the coverage period. Cannot reimburse insurance premiums. Cannot reimburse qualified long-term care services.
Are distributions (or cash-outs) for non-medical expenses permitted?	Yes, distributions cannot be restricted to pay or reimburse only qualified medical expenses, However, distributions for non-medical expenses are taxable and subject to a 10% excise tax (certain exceptions apply).	No.	No.
Must coverage be elected/provided for a full 12 month period, and are there prohibitions on mid-year changes?	Not for HSA. IRS guidance confirms that the 12 month coverage and election change rules do not apply even for HSAs offered through a cafeteria plan. Yes for HDHP funded through cafeteria plan.	Not for HRA. Yes for a HDHC funded through cafeteria plan.	Yes.
Do the uniform coverage rules apply, requiring the annual coverage amount to be available as of the first day of the plan year?	No. But IRS guidance indicates that employers may choose to accelerate funding of HSA salary reduction elections under a cafeteria plan so long as certain requirements are met.	NO. Coverage may be prorated by plan design (e.g., employee has $100 credited to a bookkeeping account each month).	Yes.
Can amounts that are unused at termination of active employment continue to be spent?	Yes. HSAs are nonforfeitable and portable.	Yes. HRAs can permit unused amounts to be used until depleted to pay for claims incurred after termination (COBRA may also apply).	Generally no. Cannot use unused amounts to pay for claims incurred after termination (except COBRA or a plan's grace period may allow).
To be reimbursable, must claims be incurred during the current period of coverage?	No. Distributions for qualifying medical expenses will be tax-free if incurred at any time after the HSA is established. (See note 2)	Yes, but with an exception. Claims incurred but not reimbursed due to an insufficient HRA balance can be reimbursed in subsequent year - if the participant was a participant when the claims were incurred and is still a participant.	Yes.
Is expense substantiation required?	Yes. HSA account holder must retain records.	Yes.	Yes.
Is independent claim adjudication requires? That is must someone other than the covered employee/individual process and approve the claim?	No.	Yes.	Yes.
Can an individual participate in more than one of these vehicles at the same time?	A traditional, general-purpose health FSA or HRA will make an individual ineligible for an HSA. But a limited-purpose health FSA or HRA, a high-deductible health FSA or HRA, a suspended HRA or a retirement HRA will not prevent HSA eligibility.	An employee who is covered by an HRA may also participate in a health FSA. A traditional, general-purpose HRA will make an individual ineligible for an HSA. But a limited-purpose HRA, a high-deductible HRA, a suspended HRA or a retirement HRA will not prevent HSA eligibility.	An employee who is covered by a health FSA may also participate in a HRA. A traditional, general-purpose health FSA will make an individual ineligible for an HSA. But a limited-purpose health FSA, or a high-deductible health FSA will not prevent HSA eligibility.
Are there ordering rules that apply?	No. HRA or health FSA participants do not need to exhaust their HSAs before seeking payment or reimbursement through the HRA or health FSA. (Note: The box above describes the limited HRA or health FSA designs that do not interfere with HSA eligibility.) Cannot reimburse expenses that have been reimbursed elsewhere.	Yes Generally, health FSAs must be payors of last resort vis-à-vis an HRA. But HRAs and health FSAs can be drafted to require that the HRA pays only after health FSA amounts are exhausted. Cannot reimburse expenses that have been reimbursed elsewhere.	Yes. Generally, health FSAs must be payors of last resort vis-à-vis an HRA. But HRAs and health FSAs can be drafted to require that the HRA pays only after the health FSA amounts are exhausted. Cannot reimburse expenses that have been reimbursed elsewhere.
Do Code § 105(h) non-discrimination requirements apply?	Yes, for HSA but employer contributions made outside a cafeteria plan are subject to comparability requirements. Yes for HDHP.	Yes.	Yes.
Do Code § 125 non-discrimination requirements apply?	Yes, for HSA or HDHP offered under a cafeteria plan.	No. HRAs cannot be offered under a cafeteria plan. But the non-discrimination rules will apply to a HDHC offered under a cafeteria plan.	Yes, for health FSAs offered under a cafeteria plan.
Is a trust account required?	Yes.	No, not by the Code, but possibly by ERISA (see box in previous column).	No, not by the Code, but possibly by ERISA (no trust if health FSA complies with ERISA Tech. Rel. 92-01. including that reimbursements are made directly out of the general assets of the employer).
Are account earnings taxable?	No (except unrelated business income will be taxed under Code § 511).	If reimbursements are made directly out of the general assets of the employer and account funds are not set aside in a separate account, there are no earnings to be taxed. If funds are deposited in a VEBA, earnings generally are not taxable.	If reimbursements are made directly out of the general assets of the employer and account funds are not set aside in a separate account, there are no earnings to be taxed. If funds are deposited in a VEBA, earnings generally are not taxable.
ERISA (for ERISA-covered employers)
Is it an ERISA plan? (if a plan is subject to ERISA, various requirements will apply, a few of which are highlighted below)	Generally no, unless employer takes action that triggers ERISA under DOL guidance. Employer contributions alone do not trigger ERISA.	Yes, unless plan maintained by government entity or church (ERISA does not apply).	Yes, unless plan maintained by government entity or church (ERISA does not apply).
Is there a funding requirement?	The CODE requires that HSA contributions be put in a trust or custodial account. ERISA’s trust requirements will also apply to an employer sponsored HSA that is an ERISA plan.	No. Employers may decide to fund (i.e. set aside funds) as a potential liability increases. But any such funding may invoke ERISA’s trust requirements if amounts are segregated from general assets.	No. Although there is no requirement to set funds aside in a separate account, an employer may choose to do so. But any such funding may invoke ERISA’s trust requirements if amounts are segregated from general assets.
Are there plan assets for ERISA purposes?	Generally no. But yes for an employer sponsored HSA that is an ERISA plan (i.e. employer contributions and employee’s pre-tax salary reductions would be plan assets).	With no employee contributions, HRAs generally do not have plan assets so long as all reimbursements are paid directly out of general assets of the employer and not from a special fund segregated from the general assets of the employer.	Yes. Even for plans that are treated as ‘unfunded” under ERISA Tech. Rel. 92-1, salary reductions amounts are plan assets for the purpose of ERISA’s exclusive benefit and fiduciary duty rules.
Is an ERISA Form 5500 required to be filed?	Generally no. Presumably yes for an employer sponsored HSA that is an ERISA plan. But because HSAs are individual trusts or custodial accounts, it is uncertain how an employer would be required to comply with its Form 5500 obligation.	Yes, Exception for small (fewer than 100 participant) unfunded plans.	Yes, Exception for small (fewer than 100 participant) unfunded plans.
Do ERISA SPDs and other disclosures and adherence to ERISA’s benefit claims procedures apply? (SPD = Summary Plan Description)	Generally, no. Yes for an employer sponsored HSA that is an ERISA plan. How ERISA claim procedures would apply is uncertain since HSA claims are generally self-adjudicated.	Yes.	Yes.
Other Laws
Do HIPAA’s portability certificates of creditable coverage, and health status nondiscrimination provisions apply?	Yes, for an HDHP and maybe for an employer sponsored HSA that is an ERISA plan. Special rules apply to governmental plans and to church plans.	Yes. Exception for HRAs that fall within the technical definition of a health FSA.	Yes. Exceptions for most (not all) health FSAs funded with salary reductions.
Do HIPAA’s administrative simplification (including privacy) provisions apply?	Yes, for a HDHP and for an employer sponsored HSA that is an ERISA plan. Maybe for an HAS that is not an ERISA plan.	Yes.	Yes.
Does COBRA apply?	Generally no, for HSAs. But there is some uncertainty as to whether ERISA’s COBRA provisions may apply to an HSA that is an ERISA plan and whether PHSA’s COBRA provisions may apply to HSAs sponsored by state and local government employers. Yes, for HDHP.	Yes. Rarely, an HRA providing less than or equal to $500 in coverage will satisfy the terms of the special rule limiting COBRA obligations for qualifying health FSAs.	Yes. But, there is a special rule limiting COBRA obligations for qualifying health FSAs
Are Creditable Coverage Disclosures required under Medicare Part D?	No, for HSAs. Yes, for HDHPs.	Yes.	No.

Flexible Spending Accounts -- Dependent Care (DCA):

The DCA is a valuable component of any employee benefit program. Regulated by the IRS, this program let you pay for eligible dependent care expenses with pre-tax dollars. In other words, the money you deposit into the DCA will never be taxed. That saves you money on every dollar you set aside. You can save as much as 30% on dependent care expenses by participating.

The DCA benefit program provides for the following:  

• An annual pre-tax maximum election amount of up to $5,000

• Note: Participant’s dependent care costs may exceed the YTD amount deductions submitted to PBS, necessitating split payments

• The DCA payroll deductions can be used to covers expenses for a qualified dependent, defined as:

• Child(ren) under age 13 whom you are entitled to claim as dependents on your federal income tax return; and/or
• Participant’s spouse or any dependent living in household who is physically and/or mentally incapable of self-care who spends at least eight hours a day in your home

• Qualified dependent care expenses include:

• Care at licensed nursery schools, day camps (not overnight camps) and child care centers which provide day care.
• Services from individuals - other than your or your spouse’s dependent or children under age 19 who provide care in or outside your home.

• Participants need to save all receipts because Dependent Care FSAs are IRS-regulated benefits and may require submission of receipts to verify expenses
• Dependent Care FSA funds become available as they are deducted from the paycheck and submitted to PBS
• Value load – funds are loaded on the PBS System automatically from the State of Connecticut payroll file
• DC FSA funds can only be used at valid dependent care locations
• Deduction should be taken a maximum of two times per month for bi-weekly payroll:

• Applies specifically for months with 3 pay periods

• Pre-fund: same as the health care FSA

• Percent of annual election amount


• You can submit incurred expenses for reimbursement either manually or on-line by accessing the PBS website my.pbscard.com


• You can request that your DCA reimbursements be paid via direct deposit into your account. Simply access the PBS website my.pbscard.com

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Qualified Transportation Accounts (QTA):

The QTA is a valuable component of the any employee benefit program where individuals are using mass transit or incurring parking expenses related to work. Regulated by the IRS, this program let you pay for eligible transportation expenses with pre-tax dollars. In other words, the money you deposit into the QTA will never be taxed. That saves you money on every dollar you set aside. You can save as much as 30% on transportation expenses by participating.
A QTA enables pre-tax dollars to be used for eligible transit and parking expenses related to your commute to work as governed by IRC Section 132.

IRS sets maximum monthly pre-tax deduction and spending and adjusts annually – for 2009, these are:

• Transit Passes or Commuter Highway Vehicle - $120.00 prior to 3/1/09 and $230.00 from 3/1/09 - 12/31/10
• Parking - $230.00
• Participation in both of these accounts is permitted; however, the funds cannot be transferred between accounts.

Contributions become available for reimbursement based on the payroll deduction cycle, like Dependent Care.

Elections can be changed monthly.

Unused months can be carrier over to the following months.

In 2006, the IRS issued rules governing the use of a pre-paid benefit card in connection with QTA benefits. The PBS Card in compliance with the Ruling supports:

• Enabled QTA administrators to provide a pre-paid benefit card for transit benefits transit expenses and in all markets with respect to commuter parking benefits per the discretion of the third party administrator.
• The loading of payroll deduction information on the PBS Card for the electronic swiping of payments
• The ability to load separate reservoirs of funds or “purses” for parking and transit expenses.
• The ability to hold purses for multiple programs, i.e. FSA, HRA, HSA, & QTA
• Validate pre-tax monthly limits at the POS.

Parking included Automobile parking lots & garages

Transit includes Railroads, suburban & local commuter passenger expenses, including ferries, buses, and other transportation services. 

Expenses are limited to qualified parking at or near the work location or at a location from which a mass transit is used.

Expenses are limited to the employee expenses only, spousal expenses are not allowed.

All reimbursable expenses must be incurred and paid. The prepaid benefit card swipe verifies that the expense has been incurred and the merchant paid.

Provisions for recurring expense processing requires that an initial claim be submitted and substantiated manually after which subsequent transactions can be automatically substantiated.

In those cases where you are unable to use your Prepaid Benefits Card, access the PBS website at my.pbscard.com to:

• Submit incurred expense for reimbursement either manually or on-line.
Request that your QTA reimbursements be paid via direct deposit into your account.