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A Guide to HSA and FSA Infographic

Everything You Need To Know About HSA and FSA

A personalized, tax-advantaged HSA or FSA can make healthcare easier and stretch your dollars to their full potential

HSA: Health Savings Account

  • Help people pay for healthcare
  • Provide triple tax-advantages, meaning reduce taxable income with
    • Tax-free contributions
    • Tax-free earned interest
    • Tax-free withdrawal for qualified expenses
  • Who qualifies for an HSA?
    • Cannot be eligible for Medicare or Medicaid and cannot be claimed as a dependent
    • Must have an HDHP
    • What is an HDHP?
      • High deductible health plan
        • Plan with a higher deductible but lower monthly premiums
        • HDHPs and HSAs let you pay for medical expenses without getting taxed
    • How many people use HSAs?
      • 2016: 20.2 Million people enrolled in HSAs/HDHPs
        • Ages
          • 0-17: 21%
          • 18-24: 11%
          • 25-44: 30%
          • 45-64: 35%
          • 65+: 3%
        • Workers in HSA-qualified HDHPs
          • 2015: 15%
          • 2016: 19%
  • How do HSAs work?
    • Choose how much you want to contribute annually
    • Receive debit card or checks connected to HSA funds
    • Use on medical expenses, deductibles, copays, and coinsurance
      • Insurance premiums cannot be paid for with an HSA
    • 2018 Guidelines
      • Minimum deductible
        • Individual: $1,350
        • Family: $2,700
      • Out of pocket maximum
        • Individual: $6,650
        • Family: $13,300
          • Individual in the family: $7,350
        • Contribution limits
          • Individual: $3,450
          • Family: $6,900
            • Adults over 55 can contribute up to $1,000 more

HSAs have a lot to offer―from investment opportunities to vision care―but there are other options out there if you don’t qualify.

FSA: Flexible Spending Account (FSA)

  • Differences from the HSA may make it the right option for some
    • No eligibility requirements, including no HDHP
    • Contribution limit: $2,650
    • Contribution amounts can only change at open enrollment or with job status or family status change
    • Lower deductible helps individuals and families with regular medical needs
  • Drawbacks
    • Use-it-or-lose-it rule: Leftover funds do not roll over to next year
      • Two Exceptions to the Use-it-or-Lose-it rule
        • Grace Period
          • Employees given extra 2.5 months for new expenses using the previous year’s funds
          • After that, all unused money forfeited
        • Carryover
          • Employees can roll over up to $500 of unused funds into the next year
          • Any money over $500 forfeited
    • Not portable with a job change
    • Employer-owned but employee funded
    • Contributions tax-free but doesn’t build interest or withdraw tax-free
    • Can’t invest funds
  • Types of FSAs
    • Limited Purpose FSA
      • Can be used concurrently with an HSA
      • Only used for vision and dental care
    • Full Purpose FSA
      • Cannot enroll in both HSA and FSA
      • Used for coverage of medical, dental, prescription, and vision care

FSAs and HSAs are great, but everyone has different needs―you need to know the upsides and downsides of both before enrolling

HSA Benefits, Disadvantages, and Tips

  • Possible Drawbacks of the HSA
    • High healthcare costs can eat up account or require more money out of pocket
    • High deductible requirement can be expensive for some
    • Medical recordkeeping can be a hassle
    • Some HSAs charge a monthly maintenance fee or a per-transaction fee
    • Use on things other than medical expenses could incur penalties and tax
      • After age 65, penalties stop but taxes continue
  • Benefits of the HSA
    • Anyone can contribute to it
      • Employer
      • Family
      • Anyone else
    • Triple tax-advantaged plan
      • Pre-tax/tax deductible
      • Accrues interest tax-free
      • Allows withdrawal tax-free
    • Portable plan
      • Follows you when you change jobs unlike the FSA
    • Lower health insurance premiums
      • Insurers reward for willingness to take risk on HDHP
    • Employers can deposit pre-tax income directly into HSA
      • Deposits can be claimed as deductions on taxes
    • Tax-free interest and investment profit in line with retirement accounts
      • Leftover funds roll over annually tax-free
  • Tips to Get Your Account Rolling
    • Find account that works for you
      • Easy to use
      • Pays interest
      • Charges low fees
      • Allows you to invest account contributions
    • Talk to your employer about company HSAs
      • Opt to pay prorated monthly contribution or total upfront
      • Employers can contribute to “non-highly compensated employees” without employer-provided healthcare plan
    • Investment
      • Can be invested in mutual funds, stocks, and bonds
      • More beneficial than an IRA or 401(k) which are subject to FICA tax
      • Transfer IRA (Individual Retirement Account) funds to HSA through trustees without paying taxes
    • Reimbursement for Medical Expenses
      • Pay medical bills and reimburse yourself from the HSA account later
      • Expenses must be from after the HSA account was established
      • No time limit, even into next enrollment year
      • Keep records accurate and safe to prove transactions in case of IRS audit
      • Have check or fund transfer sent to HSA holder or withdraw from an ATM
  • Qualified Medical Expenses

Whether you’re interested in an HSA or FSA for your medical or vision care―pick the plan that’s right for you and if it’s an FSA, remember to use it or lose it.

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Sources:

https://money.usnews.com/money/blogs/my-money/articles/2017-04-04/5-ways-to-get-the-most-value-from-your-hsa

https://www.nerdwallet.com/blog/health/what-is-an-hsa/

https://www.nerdwallet.com/blog/health/employer-offers-hsa-fsa-whats-difference/

https://www.healthcare.gov/glossary/high-deductible-health-plan/

https://www.ahip.org/wp-content/uploads/2017/02/2016_HSASurvey_Draft_2.14.17.pdf

https://www.kff.org/report-section/ehbs-2016-section-eight-high-deductible-health-plans-with-savings-option/

https://broker.uhc.com/assets/2018-hsa-guidelines-100-8536.pdf

https://fitsmallbusiness.com/section-125-cafeteria-plan/

https://www.zenefits.com/blog/fsa-vs-hsa/

https://money.usnews.com/money/personal-finance/articles/2015/11/19/fsa-vs-hsa-how-to-make-the-best-choice-during-open-enrollment

https://www.cmich.edu/fas/hr/Documents/General%20Purpose%20vs.%20Limited%20Purpose%20Health%20FSA.pdf

https://www.creditcards.com/credit-card-news/how-to-get-reimbursed-hsa-health-savings-account.php

https://www.investopedia.com/articles/personal-finance/090814/pros-and-cons-health-savings-account-hsa.asp

https://www.lenscrafters.com/lc-us/vision-guide/vision-fsa-and-prescription-eyewear

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