When deciding which health plans to select during open enrollment periods, examining health savings options should be an important point to consider. Often, savings accounts are offered in the form of FSAs and HSAs, and while both serve the same general purpose, they differ in terms of how contributions are used and who is eligible. So, how do you know which is the better choice? Learn more about your health savings options and how to choose the best option for you.
What Are FSAs?
An FSA (flexible spending account) is an account that allows insured individuals to pay for out-of-pocket medical expenses with tax-free dollars. Eligible expenses may include:
- Co-pays, co-insurance, and deductibles
- Dental expenses like exams, cleanings, X-rays, and braces
- Vision expenses such as exams, contacts and supplies, eyeglasses, and laser eye surgery
- Professional services like physical therapy, chiropractic care, and acupuncture
- Prescription drugs, insulin, and over-the-counter medicine
- Over-the-counter supplies like bandages, pregnancy tests, and blood pressure monitors
With an FSA, insureds may determine how much is deposited into the account up to a certain dollar amount as determined by their employer. If money is left over at the end of the year, the insured may either get two-and-a-half more months to spend it or carry over an amount defined by the employer into the next year.
What Are HSAs?
An HSA (health savings account) allows insureds to set money aside on a pre-tax basis to pay for qualified medical expenses. Funds may be used at any time, but insureds can only contribute if they have an HSA-eligible plan; sometimes called a high-deductible health plan, this coverage generally only covers preventive services before the deductible. Sometimes offered by banks, credit unions, or other financial institutions, enrolling in an HSA-eligible plan means insureds could pay lower monthly premiums, albeit with higher deductibles.
An HSA may earn interest or other earnings, which are also not taxable. HSAs are generally not used to pay premiums, but money may be used to pay deductibles, co-payments, and co-insurance. Insureds who don’t need many healthcare items and services could benefit from lower monthly premiums; conversely, those who need more care could save by using pre-tax dollars in the HSA. Because HSAs are wholly owned by their insureds, the balance can roll over year after year with no cap.
What’s the Difference?
While both FSAs and HSAs serve virtually the same purpose — setting aside money to be used for healthcare expenses — these accounts differ in numerous ways and shouldn’t be thought of as interchangeable. Some differences include:
- Eligibility — HSAs require a high-deductible health plan, while FSAs only require a traditional health plan.
- Contributions — While the IRS sets annual limits for individual and family HSA and family accounts, FSAs have one blanket contribution limit applying to all accounts (usually lower than the HSA contribution limit.
- Rollover — Unused HSA account funds roll over every year, but FSA funds may be lost if not used by the end of the year.
- Ownership — Insureds own their HSAs, while employers own FSA.
- Investing potential — HSA balances can be grown through investments in stocks, bonds, exchange-traded funds (ETFs), or mutual funds. FSA funds cannot be invested.
- Portability — HSAs can remain in ownership of the insured if they leave their job or are terminated, while FSAs are forfeited.
Ready to save on your healthcare costs? Our agents are standing by to help! Contact Nate Rugaard at (309) 642-6840 or nrugaard@unland.com and find a solution that works for you and your employee