When you start a new job, you’ll be given a list of all the company’s benefits, and flexible spending accounts (FSA) and health savings accounts (HSA) are often at the top of the list of benefits. Here’s an informative guide to the similarities and differences between these two popular employer benefits.
How Are HSA and FSA Different?
One major difference between the two is that the HSA is strictly for medical expenses, whereas the FSA can be designated to be an account for healthcare expenses, dependent childcare expenses, or work-related parking and transit costs.
Although employees must have high-deductible health insurance plans to be eligible for flexible spending accounts, the deductibles for HSA insurance plans must be at least $1,250 for single employees and $2,500 for families. The maximum amount you can contribute is $2,500 for FSAs while HSA contribution limits are a max of $3,300 for singles and $6,550 for married couples. In 2015, these limits will increase to $3,350 and $6,650 for HSA plans.
The HSA is a (typically no-fee) bank account that you own whereas the FSA is owned by your employer but set up by you. With the FSA, you have access to the total amount you’ve set up in your account even if you’ve only made one deposit, but the HSA only allows you access to the amount that’s in the account. Any amounts that are still in your HSA account must be used within the first two and a half months or you lose any amount over $500.
How you spend the money in your FSA may be monitored whereas the HAS account is more lenient and trusting. The FSA rules are slightly different than the HAS rules. For example, you can change your HSA contribution amount at any time for any reason, but your FSA amount can only be changed if you have a life-altering or qualifying circumstance.
How Are They Similar?
They both allow you to pay for qualified medical expenses with pre-tax money. You deposit money from your paycheck into the accounts and withdraw it as needed to pay for tax-deductible medical expenses. Both of the plans are offered to employees who have health insurance plans with high deductibles.
They both have contribution limits as to how much can be deposited by the employee, both may stick you with a twenty percent penalty if you use the funds for non-qualified expenses, and both plans provide the employee with a debit card to make paying for medical expenses easy and convenient.
What Are Eligible Expenses?
HSA and FSA eligible expenses are generally medical expenses that were not paid by your insurance because of deductible or co-payments. The list is very broad; however, here is a sample of what type of health care expenses that would be considered FSA or HSA eligible expenses.
- Chiropractic services
- Hearing aids and batteries
- Coinsurance, deductibles, and co-payments
- Dental care not covered under a dental plan
- Eyeglasses or eye surgery not covered under a plan
- Infertility treatments
- Over-the-counter medications and pharmaceutical items
- Orthodontic treatment not covered under a plan
What Are The Benefits of Each?
Both plans help you by allowing you to put money from your paycheck into a savings account to help pay medical bills. They both give you the money tax-free so your paycheck is in a lower tax bracket. A major benefit of a HSA plan? Unlike, flex spending accounts, there is no “use it or lose it” rule. The FSA benefits more people though because there is no requirement for a high deductible health plan. When trying to decide whether you should have a FSA or HSA plan, consider all of the ways that you spend on health care and make the choice that’s right for you.
