Health Savings Account or Flexible Spending Account: Which Is Right For You?

Health Savings Account

HSA vs. FSA

Employee healthcare insurance has made national news with the increased use of HSA and FSA plans. These programs help employees have more control over their healthcare insurance benefits than in the past and employees want them to maximize their benefits and minimize their medical insurance out of pocket costs.

HSA (Health Savings Account) and FSA (Flexible Spending Account) are accounts designed for employers to help their employees use tax-free spending to cover healthcare expenses. These accounts have some similarities and differences that you should understand.

HSA (Health Savings Account) and FSA (Flexible Spending Account) are accounts designed for employers to help their employees use tax-free spending to cover healthcare expenses. These accounts have some similarities and differences that you should understand.

Health Savings Accounts

HSA plans are designed to help the employee pay for future medical expenses and are connected with a high deductible health insurance plan. The high deductible insurance plan is a cheap insurance plan for the employer, so the employer often contributes to the HSA along with the employee. The employee’s contribution is tax-deferred, which means it is taken out prior to being taxed.

If you opt for the HSA account, you will use the funds for health-related expenses not covered by the insurance plan, such as copayments, emergency care, chiropractic, prescriptions, and other qualified medical expense.

The employee typically choosing the HSA account is a single individual or a family with no ongoing medical problems and infrequently makes insurance claims. One benefit of the HSA account is at the end of the year, the funds that are left role over to the next year. Another advantage is the account belongs to the employee, and it can move from employer to employer.

HSA-vs-FSA

Flexible Spending Accounts

FSA plans are designed to help employees set aside money to help pay for their out-of-pocket healthcare expenses with money deducted before taxes. The employee that typically uses an FSA is one that chooses the more traditional insurance coverage, has a family, and/or ongoing medical care, such as someone with diabetes. This is the plan you want if you make insurance claims throughout the year.

The benefit of this account is that it is pre-taxed money set aside to pay for medical expenses like prescriptions, copayments, acupuncture, orthodontics, and other costs not covered by the insurance plan. If you plan your expenses right, you will spend all the money in the account by the end of the year.

The downside of an FSA is that your money will not carry over to the next year. There are two exceptions: 1) $500 can be carried over to the next year and 2) there is a 2.5 months grace period into the new year to spend the money. Any funds left will be lost.  The account stays with the employer and will not follow you to a new job.

Advantage of High Deductible Insurance

HSA accounts go along with the high deductible insurance plan, which is designed to provide insurance coverage for catastrophic events. It’s a good option if you are struggling to find an affordable insurance plan at a reasonable price. These insurance plans have lower premiums and higher deductibles than standard plans, which is where the HSA account comes in to help out. The longer you have the account without much use, the more money you can have to help pay deductibles and medically related items when needed.

Contribution Guide

The IRS sets the limits of contribution to the HSA and FSA accounts. The limits for 2016: The maximum contribution to an HSA account is $3,350 for an individual and $6,750. Keep in mind this is the account the employee owns and the funds will carry over to the next year. The maximum contribution to an FSA account is $2,550, and only $500 can be carried over to the next year.

Effects of HSA and FSA to the Insurance Marketplace

As employees are becoming more active in their health insurance and better managing their HSA and FSA funds, the more people are moving to these plans. The projection is that 50 million Americans will be using HSA or FSA by 2019. For FSA accounts, there are projections that the “use it or lose it” rule may be amended in the near future.

Leave a Reply

Your email address will not be published. Required fields are marked *