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Health Savings Account (HSA) vs Flexible Spending Account (FSA)

26 Jan

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During open enrollment, you will have important decisions to make, such as utilizing either a health savings account (HSA) or a flexible spending account (FSA). The process may feel overwhelming, but it does not have to be. Understanding the key differences between HSAs and FSAs can help you make the right choice for you.

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HSAs and FSAs are tools that you can use to hit two main goals: saving for healthcare costs and protecting your money from taxes. FSAs and HSAs are both tax-advantaged savings accounts that allow you to pay for qualified medical expenses, such as doctor’s visits and prescription medications, with pre-taxed funds. While HSAs and FSAs are structurally similar, they are intended for different purposes and meet different needs, including who is eligible to enroll and when savings expire. Understanding the differences between an HSA or FSA is crucial to picking the best fit for you and your family.

Key Takeaways:

  • You must have a high-deductible health plan (HDHP) to qualify for an HSA.
  • Funds from your HSA roll over year after year while FSAs work on a “use it or lose it” basis, meaning any funds not spent by the end of the plan year will be lost.
  • Some HSAs offer investment options.
  • HSA holders cannot spend more than the funds that have been deducted from their paycheck. However, they can file for reimbursement later in the year.
  • You can use your FSA to cover eligible healthcare expenses early in the year, as long as you plan to contribute what’s necessary to cover those expenses by the year’s end.
  • The biggest benefit of the FSA is that withdrawals can be made for childcare expenses, as well as medical expenses.

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Which option should you choose?

In general, people with few prescriptions or medical conditions are likely to benefit more from an HSA and HDHP because even though HDHPs are some of the most inexpensive health plans available, the trade-off is very high out-of-pocket limits. If you had high medical costs, you would still have a significant amount to pay out of pocket, even if you contributed the maximum to your HSA.

People with high medical costs can often find better savings with a more generous plan than an HDHP, disqualifying the HSA as an option. Other health plans cost more per month but cover more costs upfront. While FSAs offer less flexibility than HSAs, an FSA will still help you save money, and can be paired with any plan.

To learn more or explore your options, contact VensureHR. Our benefits specialists can provide you insight to which healthcare plan and benefit option best suit your employees’ needs.

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