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Small Business Employee Benefits and HR Blog

Learning from past mistakes

Learning about FSA, POP, HRAWe've already talked about FSAs, HSAs, HRAs and POP plans work, but now I want to talk about all the ways in which these plans don't work.  I'm not doing this to pick on the plans themselves and I truly do believe that every American should be taking advantage of at least one of these options, but you still have to wonder how we ended up with a system that requires us to have so many complicated benefits plans.

So to summarize, with FSAs, employees can withhold money from their payroll to pay for medical expenses tax free.  It's a good system, except that employees have to choose their withholding at the beginning of the year and if they end up spending less on medical care than they expected, that money is lost to them forever.  Also, FSAs can't pay for insurance premiums.

There are also HSAs which let you pay for some medical expenses tax free but there are requirements on the type of insurance you can have, what types of claims you can have first-dollar coverage for, what you can contribute to the HSA, and when you can take the money out.  Like FSAs, HSAs can't pay for insurance premiums.
 
You've also got other cafeteria plans such as premium-only-plans which work like an FSA but only pay for insurance premiums.
 
Finally we have HRAs which are in many ways the best options, but employees can't contribute funds to the HRA and it's difficult to use an HRA, FSA, and POP plan at the same time so the tax benefits either apply to the employer funds or the employee funds, but not both.

WHO CAME UP WITH THESE RIDICULOUS LAWS?

There's one common theme with all the different plans I've mentioned: they all offer people ways to pay for medical expenses tax-free.  But why all the weird games?  Why make people guess how much money they'll spend and punish them if they're wrong?  Why distinguish between whether the money comes from employers or employees?  Why use four different plans just to offer basic tax benefits?
 
If medical care shouldn't be taxed, then make all those expenses tax-deductible.  Problem solved.  If it should be taxed, tax everyone.
 
It almost seems like the politicians that made these laws are watching our lives play out, laughing at all the hoops they make us jump through for no apparent reason.  This is straight out of The Truman Show except the show is about every single American citizen.

The real culprit here is compromise.  Obviously it's great that we live in a country where everyone has a voice, but when you take proposals from every point of view and try to combine them into one hodge-podge of legislation, you end up with a mess that has all the problems of the original ideas without any of the innovation or benefits.

I realize how futile it is for me to say this, but we as a nation need to strive for simplicity.  If health insurance should be tax-free, make it tax-free.  It doesn't need to be any more complicated than that.
The Comprehensive Guide to the Small Business HRA

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