It’s no secret that healthcare can be expensive, but having the right benefits programs can make a big difference on annual healthcare costs. However, it’s not always easy to navigate benefits programs without a little expert guidance. One question we hear often is about understanding the differences between a Flexible Spending Account (FSA) and Health Savings Account (HSA) – after all, they both can be used for healthcare expenses.
Flexible spending accounts (FSAs) and health savings accounts (HSAs) are both great ways to save on the cost of medical care, but the accounts differ substantially in several areas. Here’s are 5 key differences your employees should know about:
1. Eligibility
Before we get ahead of ourselves, let’s answer the most important question: which program do you qualify for?
In the case of FSAs, eligibility requirements are fairly simple: in order to qualify, you simply have to be the employee (or employer) of a company that offers an FSA.
For HSAs, eligibility is slightly more complex. First, you must be covered under a qualified high-deductible health plan (HDHP). You also must be at least 18 years of age, and cannot be enrolled in Medicare or claimed as a dependent on someone else’s tax return.
2. Account owner
As mentioned above, in order to qualify for an FSA it must be offered through your employer, so technically, your employer owns your account. That means if you switch jobs mid-year, you’ll likely lose your FSA, unless you are eligible for FSA continuation under COBRA.
An HSA, on the other hand, has no connection to your employer, so even if you change jobs, your HSA can come with you. That also means you can contribute to an HSA regardless of employment status, so long as you have an HDHP (high-deductible health plan).
3. Access to funds
Here’s where it gets interesting. With an FSA, you elect a certain amount during open enrollment to be put aside every year, and that election amount is immediately available in its entirety, thanks to your employer. This can come in handy, for instance, if you know you’re going to use it to cover an eligible surgery early in the year. Although the money itself will be taken out of your paycheck as the year goes on, you will always have access to the full amount you elected.
With HSAs, on the other hand, you can only access whatever has already been put into the account. That means if you have an expense coming up, you’ll have to make sure the correct amount has accrued before you can use your HSA to cover it.
4. Contribution limit
Due to the pandemic, the contribution limits for both FSAs and HSAs have been raised. The annual limit on FSAs in 2022 is $2,850, a $100 increase from last year’s maximum contribution.
The annual limit on HSAs for 2022 is $3,650 for individuals and $7,300 for family coverage.
5. Rollover
Rollovers are one of the main differences between the two programs. With FSAs, you’re not guaranteed any rollover depending on the type of account you have. That’s why it’s important for you to keep tabs on how much money is in your account as the year progresses and to take time during open enrollment to think through budgeting. And if you happen to over-budget, there are plenty of basics you can spend that extra money on.
With HSAs, on the other hand, any unused balance rolls over into the next year, which is one of the biggest benefits to this program. That being said, you’ll have to budget your expenses either way — even if you have contributions rollover from one year to the next, it’s still important to calculate what you’ll actually need before you decide how much to contribute.
If you have any more questions about how an FSA or HSA can benefit your employees, please don’t hesitate to reach out at sales@getbenepass.com.
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