Distinguishing Between an HSA and FSA: Understanding the Difference

We all know that there are many choices to be made when it comes to enrolling in an insurance plan. Do I want to stay on my current plan or should I make a switch? What is the best plan for me? Do I enroll into a Versatile Financial Savings Account (FSA), or a Health Financial Savings Account (HSA). We get it. There are many choices and no one solution fits all. How do you know what is best for you? We are here to help.

Most people have trouble understanding the difference between an FSA, and an HSA. Both accounts share many similarities but also have some differences. Here’s the important information.

What is the relationship between them?

FSAs and HSAs are both tax-advantaged savings accounts used to pay medical expenses that are not covered by insurance. You can contribute pre-taxed money on a monthly basis. You can reduce your taxable income by doing so. The money in your FSA and HSA will be used to cover out-of pocket expenses and prescription costs.

What is the difference between the two?

While an FSA or HSA both help cover out-of pocket expenses, they differ in terms of who is eligible, how long the fund lasts, and who owns it.

Savings Accounts that are Versatile

An FSA, on the most basic level, is a fund that’s tax-free and where you can pay for your out-of pocket expenses. There are, however, some restrictions. FSAs are a benefit from your employer, and they own them. If you’re self employed you cannot have an FSA. If you qualify for an FSA through your employer, then you can sign up to benefit from this account when you choose a health plan. You can also choose the amount of money you want to contribute to this account.

The FSAs come pre-funded. This means that you can use the amount you specified during open enrollment, even if it is not yet accumulated. These accounts are based on the “use it or loose it” principle. You forfeit any unused balance if you do not use all the money you allocated throughout the year. Some employers will allow you to carry $500 over each calendar year. This account is also tied to the employment you have with the company, so if you leave the firm in the middle of the year, you will probably lose your FSA.

Well-being Financial Savings Account

HSAs are also a tax-free account where you can pay out-of pocket medical expenses. However, unlike FSAs they’re not tied to your employer. They are however tied to your choice of health plan. HSAs can only be used by people who have high-deductible health plans. If you select a health plan that allows an HSA, then you can decide the amount you want to contribute each month. You can change the amount you contribute all year, unlike an FSA.

There is no “use it up or lose it” rule. These accounts also come with some additional benefits. These funds can be invested in shares or mutual funds. Another is that employers will always contribute to or match an amount in your HSA. This can be a great incentive for choosing a high-deductible health plan.

Which one should you choose?

You can use these accounts to pay for your bills and get great benefits. It could come down to your eligibility. If you are self-employed, and want to set up a medical savings account, then an HSA is the best option. If you are employed by a company and know what your annual out-of pocket expenses will be, an FSA is the way to go.

You can start by weighing the pros and cons, but we are also here to help! We’ll explain how each account works and provide information to help you make an informed decision. Call us by dialing 1-888-206-4697 or the number on the back of your ID card. Our customer service representatives will guide you to the right path.


Posted

in

by

Tags: