Health Savings Accounts (HSA). Flexible Spending Accounts (FSA). What’s the difference?
Apparently, according to a recent survey by Fidelity Investments, it’s unclear.
When asked about the FSA, 73% of survey respondents often confused it with an HSA – thinking it was the same type of plan. The majority of respondents (69%) were convinced that the HSA and FSA have the same “use it or lose it” provision – meaning their funds would expire if they were not used by set deadlines.
Here are the most important details for each plan:
Both plans offer major tax savings for participants when health care costs are on the rise. Flexible Spending Accounts are not subject to federal (and often state and local) income taxes, or social security and Medicare taxes. Health Savings Accounts can also not be subject to federal income taxes or Social Security & Medicare taxes if the employee HSA contributions are made through a cafeteria plan. If they are not, the employee only saves state and federal taxes.
What are they? Employee benefit add-on that lets people set aside pre-tax money on eligible medical expenses.
What’s covered? Applicable medical expenses include over-the-counter products, prescriptions, and co-pays, coinsurance and deductibles for visits with health care providers.
What are contribution limits? $2,500 per person per year; $5,000 per family is both spouses have an FSA.
Other important details?
- Have a “Use it or Lose it” rule – remaining FSA funds at the end of plan year do not roll over.
- Any over-the-counter products containing medicines will require a prescription to be reimbursed by an FSA. Products such as Advil or Prilosec are examples of items needing a doctor’s prescription. FSAstore.com has a convenient Rx Process where participants can submit their prescriptions.
HSAs have been growing in popularity. In 2012, some 8.2 million Americans had HSAs, Fidelity Investment pointed out.
What they are? A Health Savings Account is a tax-free trust or custodial account for those who are enrolled in a high-deductible health insurance plan.
What’s covered? Qualified medical expenses similar to the FSA. To get a detailed, IRS-approved list, go here.
What are the contribution limits? As of 2013: $3,250 for a single person, $6,450 per family. As of 2014: $3,300 for a single person, $6,550 per family.
Funds roll over year-to-year (funds are not “use it or lose it”). You can keep contributing to an HSA at any time. Your HSA also comes with you as you leave your job.
The Fidelity survey highlights a pressing need for education about employee benefits. Where does the gap start in understanding these plans? Employees often turn to their HR departments for answers about any work-related issues, and employee benefits should be one of those as well.
As open enrollment approaches for many companies, it’s a good time to start researching options available. Are you unsure what an FSA or HSA is? How do these plans benefit you? Does your company offer either of these plans? Do you realize the tax savings you could get from an FSA?
How FSAstore.com Helps
FSAstore.com offers many different tools to help you sort out your FSA needs.
- You can research plans through an FSA Learning Center before enrolling.
- You can calculate health expenses for the year with the FSA Calculator to make the best decision about your FSA contribution.
- You can discover which products are eligible with an FSA simply by looking at the various FSA eligible products categories offered (first aid, baby care, sun care, pain relief and more), or by clicking on the FSA Eligibility List.
- You can search FSA Eligible Services (health providers) that accept FSAs.