CDH accounts, or Consumer-Directed Health Plans (CDH or CDHP), are spending accounts that employees and employers can contribute from pre-tax paycheck dollars to spend on eligible healthcare of commute expenses defined by the IRS.
There are a total of 6 types of common CDH accounts:
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FSA (Flexible Spending Account)
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LPFSA (Limited Purpose Flexible Spending Account)
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DCFSA (Dependent Care Flexible Spending Account)
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HRA (Health Reimbursement Arrangement Account)
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HSA (Health Saving Account)
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Commuter Account
Why is this beneficial?
Imagine someone commutes to work and spends $200/month on buses or trains. He can set $200 aside every month, tax-free, into this special-purpose checking account that can be used to pay for his tickets. Assuming a tax bracket of 25%, then over the course of a year, he'd save $200*12*25% = $600 on tax dollars!
How does each CDH account work?
See the following articles for more information.
Comparison: How are CDH Accounts funded?
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Pre-funded |
Payroll-funded |
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FSA |
V |
|
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LPFSA |
V |
|
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DCFSA |
|
V |
|
HSA |
|
V |
|
Commuter |
|
V |
|
HRA |
V |
|
What are pre-funded and payroll-funded?
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Pre-funded: The employer places the total annual election on the first day the account is opened, so the total annual election amount is available on day one of your plan year.
For Health Care FSA/Limited Purpose FSA, the employee must pay back the employer over the course of the year. The money is deducted pretax from the employee's paycheck to pay back the employer.
For HRA, Employees do not have to pay back the annual election to the employer over the course of the year.
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Payroll-funded: The employee needs to fund the account each pay period with pretax money to achieve the annual election over the course of the year. Participants only have access to the funds that have been built into the account. This means you cannot claim the funds that exceed the amount in your account.
Comparison: Annual Contributions
Reading:
Contribution Limits of each tax-advantaged account in 2021
Contribution Limits of each tax-advantaged account in 2022
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Annual Contribution Limits |
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FSA / LPFSA |
In 2022: $2,850 The employer can make an extra $500 contributions on top of your annual election. |
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DCFSA |
In 2022: If married and filing jointly: $5,000 If married and filing separately: $2,500 Special Rules in 2021: American Rescue Plan Act (ARPA) If single and filing as head of household or married and filing a joint tax return: $10,500 If married and filing separate tax returns: $5,250 |
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HSA |
In 2022: Individual coverage: $3,650 Family coverage: $7,300 Above 55 years old: Additional $1,000
Above 55 years old: Additional $1,000 |
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Commuter (Transit/Parking) |
In 2022: Post-tax contributions: Any contribution over $280 would be deducted on a post-tax basis. Post-tax limits are determined by the employers. |
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HRA |
Unlimited, Determined by the employers |
What is the annual election?
It is the amount of money you elect during the enrollment. You will need to fund the account to achieve the goal throughout the course of the year. IRS creates limits for the maximum annual election but participants can select any amount under this maximum as approved by the employer. Ideally, the election amount selected will equal the participant's estimated out-of-pocket health care cost for the year which means it’s important to plan carefully so that your election amount does not exceed your expenses.
Who is eligible to contribute?
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Source of Contribution |
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FSA / LPFSA |
Employer and Employee |
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DCFSA |
Employer and Employee |
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HSA |
Any eligible Individual |
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Commuter |
Employer and Employee |
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HRA |
Employer |
Can I change my contributions/annual election?
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Rule |
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FSA / LPFSA |
You can only change the amount during the open enrollment periods or if there is a QLE. |
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DCFSA |
You can only change the amount during the open enrollment periods or if there is a QLE. |
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HSA |
Anytime |
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Commuter |
Anytime |
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HRA |
When there is a QLE. |
What is a Qualifying Life Event (QLE)?
A change in your situation — like getting married, having a baby, or losing health coverage — that can make you eligible for a Special Enrollment Period, allowing you to enroll in health insurance outside the yearly Open Enrollment Period.
Readings: What is Qualifying Life Event (QLE)
COVID-19 Relief Bill
In response to the Covid-19, Congress has passed a COVID-19 stimulus bill that may allow you to change the annual election without a QLE after the open enrollment. These temporary changes are permissive and not mandatory for employers. The employers will decide on which type of rules applied to the benefits accounts they offer.
Who owns the account?
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Account Ownership |
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FSA / LPFSA |
Employer |
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DCFSA |
Employer |
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HSA |
Employee |
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Commuter |
Employer |
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HRA |
Employer |
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Employer-owned account: The funds are forfeited once you leave the employer.
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Employee-owned account: The funds stay with you forever.
See the following articles for more information:
Plan Features - Grace Period, Runout Period, and Rollover
What is a Runout Period?
It is an extra time that an employee can submit manual claims for services render in the previous plan year to be reimbursed for that previous plan year's funds.
What is a Grace Period?
If your employer offers it, this is the last date a member can create a new qualified expense and draw from the previous year's funds. Grace period acts like an extended end date since the employee can submit new claims and swipe their debit card from the current year while paying with the previous year's funds.
What is a Rollover?
If any funds are left in the account at the end of the plan year. The employer might move the funds into the next plan year. The rollover funds will not affect the maximum annual election for the new year. Once funds have moved to the new plan year, only the funds can be used for services that occurred during the new plan year.
A rollover does not count against the annual limitation.
Note: These features and rules are permissive and not mandatory for employers. The employers will decide on which type of rules applied to the benefits accounts they offer.
|
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Features |
|
FSA / LPFSA |
1. Runout Period 3. Rollover |
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DCFSA |
1. Runout Period |
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HSA |
Funds can be transferred between your HSAs. No runout period or grace period; you can use the funds anytime. |
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Commuter |
1. Runout Period |
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HRA |
1. Runout Period 3. Rollover |
Common Combination
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Runout Period+Rollover: You can use the funds during the runout period towards your last year's expenses, and the unused funds will be rolled over to the new plan after the runout period, and you can use the rollover funds towards the current year's expenses.
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Runout Period+Grace Period: You can use the funds during the runout period towards your last year's expenses, and you can also use the funds towards your current year's expenses. Simply saying, during the overlapping, you can use your unused funds in the previous year towards your previous year and current year's expenses. Once both periods end, the unused funds will be forfeited.
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Grace Period cannot be combined with the Rollover.
COVID-19 Relief Bill
In response to the Covid-19, Congress has passed a COVID-19 stimulus bill that may allow employers to change the plan features regarding the runout period, grace period, and rollover. These temporary changes are permissive and not mandatory for employers. The employers will decide on which type of rules applied to the benefits accounts they offer.
Rollover
Normally, you may roll over up to $570 for your FSAs or LPFSAs, but no rollover option for DCFSAs.
Under the Covid-19 Relief Bill, you may be allowed to carry over any remaining unused amounts from 2020 to 2021 and 2021 to 2022.
Grace Period
Normally, you may have up to 2.5 months to spend down the remaining funds for your FSAs, LPFSAs, and DCFSAs after the last day of the plan.
Under the Covid-19 Relief Bill, your employer may extend the grace period of your 2020 and 2021 benefits plan to up to 12 months.
Run-Out Period
Normally, you may have up to 90 days for your FSAs, LPFSAs, and DCFSAs to submit manual claims for services render in the previous plan year to be reimbursed for that previous plan year's funds.
Under the Covid-19 Relief Bill, your employer may extend the run-out period of the 2020 and 2021 benefits plans to up to 12 months.
Now that you know how the CDH accounts work, let's check out the second part for more information on how to spend your money by clicking here!
As your CDH accounts administrator, Forma strictly follows IRS rules. You may find these publications helpful:
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Health Savings Accounts and Other Tax-Favored Health Plans Publication 969
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Medical and Dental Expenses Publication 502
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Child and Dependent Care Expenses Publication 503
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Qualified Transportation Fringe Rev. Rul. 2014-32
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IRS 2020 FSA, Commuter Limits Rev. Proc. 2019-44
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IRS 2022 FSA, Commuter Limits Rev. Proc. 2021-45
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IRS 2021 HSA Limit Rev. Proc. 2020-32
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IRS 2022 HSA Limit Rev. Proc. 2021-25
If you have any questions, please feel free to reach out to our Member Experience Team via live chat, email to support@joinforma.com, or call us at 844-902-2902.