HSA vs FSA
Business Health Trust teams up with Kaiser Permanente and Premera Blue Cross which are two of the most respected health insurance companies in Washington. Both Premera and Kaiser offer HSAs. We also partner with Vimly, opening up FSAs as an option for BHT customers.
Do you know the difference between a health savings account (HSA) and a flexible spending account (FSA)? Both offer different advantages and disadvantages depending on your financial and medical situation.
HSA stands for health savings account.
FSA stands for flexible spending account.
A health savings account is a tool created in 2003 for people with a high-deductible health plan or HDHP. It allows the individuals to save pre-tax dollars towards health care costs. Additionally, these are an option for people who don’t itemize on their deduction to save money on health care costs. Before 2003, individuals only had the opportunity of a tax deduction for health insurance costs if they itemized their federal deductions.
Each year a limit is set for the HSA. Also, with the HSA, the money is yours forever. Anything you don’t spend will carry over to the following year. The FSA isn’t as flexible with your money as the HSA. It’s a use-it-or-lose-it deal. Some accounts allow up to $500 or so to carry over to the next year.
An FSA isn’t limited to a high-deductible health plan. On the other hand, almost anyone can open an FSA account no matter what type of health insurance coverage they have. The exception to the rule is self-employed individuals aren’t eligible. Another benefit of an FSA is it can be set up as a DCFSA, which allows for childcare expenses and medical costs. However, keep in mind your employer determines the account type. Similar to the HSA, your employer can also make contributions to your account.
Although the FSA doesn’t carry over all unspent funds the following year, employers can allow a grace period up to March 15th of the next year to submit claims for reimbursement. The FSA covers expenses for anyone covered under the employee’s health insurance plan.
If you qualify for an HSA and don’t anticipate many health care expenses during the year, it might be the better choice. However, remember, you must sign up for the high-deductible health plan to open an HSA. With the health care savings account, you can carry over whatever you don’t spend each year without paying taxes on the money. Additionally, some HSAs can invest the funds sitting in the account without paying tax on the earnings. For someone without many health care expenses, the HSA can be an appealing option.
On the other hand, if you have several prescriptions or chronic medical conditions, an HDHP might not be the best option for care. Another consideration is child care expenses. The FSA is flexible and allows for health care and child care expenses. Individuals and families with young children may benefit more from the flexible spending account.
When reviewing the differences between an FSA and HSA for health care expenses, the rules play a considerable part. For example, if you don’t have an HDHP, you’re simply not eligible for an HSA. However, suppose you have a high-deductible health plan and low medical expenses with no children. In that case, the HSA could be the more lucrative option. In the end, you need to weigh the best options for you and your family.
If you choose the FSA, remember, you have to spend it, or you’ll lose it. Wasting money is never a sound financial plan. Moreover, keep receipts and carefully watch everything you spend your hard-earned money on. Purchasing items that aren’t allowed could cost you your account.
Expenses are where you must be careful about both accounts. Although the flexible spending account is, well, more flexible, problems can still arise. These accounts cover most medical, dental, eye care, prescription, and child care expenses, including the cost of summer camp. If you’re unsure about a price, there are lists you can verify before making the withdrawal. Some coverages that may shock you include over-the-counter acne treatments, acupuncture, aspirin, breast pumps, cold and flu medicine, condoms, and diaper rash cream over-the-counter.
Both the HSA and FSA have advantages and disadvantages. The good news is you can have both if you have a high-deductible health plan, which can give you a little help with health care and child care costs throughout the year. However, make sure to follow the rules to avoid costly penalties associated with the different spending accounts.
Washington companies with two or more enrolled employees are eligible to participate in the Business Health Trust benefit program. Participation requires membership with the Seattle Metropolitan Chamber of Commerce or one of our partner organizations: Bellingham Regional Chamber of Commerce, Economic Alliance Snohomish County, Tacoma-Pierce County Chamber of Commerce, Thurston County Chamber of Commerce, Greater Yakima Chamber of Commerce and Archbright. Your membership in any of the above organizations automatically qualifies you for one of our 13 industry group memberships (at no additional cost), and all the advocacy, resources and savings that go along with it.