Talking about healthcare is scary for some people. Between trying to find affordable coverage and deciding between different health-related savings accounts – it is overwhelming trying to make the right decision for you and your loved ones. With more employers offering their employees the opportunity to enroll in either HSAs or FSAs, more consumers have found themselves looking for information on the difference between an HSA and FSA.
Before you decide one is better than the other, you need to take a moment to learn about the pros and cons of HSAs vs. FSAs.
HSA vs. FSA Comparison
Understanding the pros and cons of an HSA vs. an FSA is essential when it comes time to decide which one will offer you the most bang for your buck. If you’re new to either of these accounts, then you’ll want to take a moment to familiarize yourself with them before reviewing the pros and cons for each:
Health Savings Account (HSA)
An HSA account is a health savings account that allows you to set aside money on a pre-tax basis. These funds can then be used to help you pay for qualifying medical expenses, such as:
- Prescription medications
- Over the counter (OTC) medications
- Doctor’s office fees and co-pays
- Feminine hygiene products
- Orthodontic care
- Physical therapy
- Vaccines
The approved items or services can vary by retailer. So, you always want to double-check before making a purchase.
Pros
An HSA account has many benefits, especially for those who have a health insurance plan with a high deductible. Some of the most notable advantages of an HSA include:
- Anyone, including you, can contribute to your HSA, your employer, a friend, and/or a loved one.
- Contributions typically are not subject to federal income tax.
- Any contributions you do not use by the end of the year will roll over into the next year
- Earning in the account grows tax-free at approximately 0.1% or less.
- Withdrawals from your HSA are not subject to federal taxes
- The list of approved medically necessary goods continues to grow
Cons
While an HSA can be extremely helpful to many, there some noteworthy disadvantages you’ll want to know about, including:
- While anyone may contribute, the IRS limits how much can be contributed in a year.
- To qualify for an HSA, you must be enrolled in a high-deductible health plan.
- Some HSA plans do have a monthly maintenance fee.
- If you choose to withdraw money from your HSA for a non-approved expense before the age of 65, then you will owe income taxes on that withdrawal, plus an additional 20% penalty.
- To prove you made approved withdrawals, you must keep all receipts
Flexible Spending Account (FSA)
An FSA is another type of savings account that often goes by the name flexible spending arrangement. That is because an FSA is a special arrangement between you and your employer that allows you to be reimbursed for the cost of approved medical expenses that are not covered by your health insurance plan. This plan allows you to decide how much you want to contribute. You can only contribute up to a limit predesignated by your employer.
Common expenses that may be covered by your FSA include:
- Co-payments
- Deductibles
- Medical Equipment
- Insulin
This is by no means an extensive list; however, approved items can and will vary. So, make sure you are reviewing your FSA guidelines to ensure you are using your funds appropriately.
Pros
Your FSA comes with a variety of benefits worth investigating. Some of the most notable pros include:
- Funds contributed to your FS are not subject to income and payroll taxes.
- Both you and your employer can contribute to your FSA.
- Funds can be used for medical and dental expenses for you, your spouse, and/or your dependents.
- You can pay for your deductibles and co-pays using your FSA funds.
Cons
While there are many positives of having an FSA, many individuals find them less flexible when compared to an HSA. Some of the most discussed negatives of an FSA include:
- You cannot put FSA funds towards monthly premiums.
- Both prescriptions and over-the-counter (OTC) medications require a doctor’s prescription for reimbursement.
- Must use your funds within the plan’s year – if you don’t, your employer may allow you to choose between a $550 carryover amount or provide up to 2.5 extra months to use up the money in your FSA. If they don’t offer either or do not use the funds by the end of the grace period, you lose that money.
Understanding the basic differences between an HSA and FSA is an excellent start in your decision-making process. Before you rush into any decision, take a moment to read through some of the most frequently asked questions on the two:
Do You Need an FSA if You have an HSA?
If you have an HSA, then no – you do not need to have an FSA as well. In fact, you likely will not be able to get approval to have both. For instance, if you qualify for an HSA either through your employer or alongside your private health insurance, you cannot have an FSA as well. The only exception to this rule is if your employer offers a limited FSA that may be used solely for vision and dental care/expenses. Unfortunately, you cannot enroll in an FSA unless your employer offers it.
Can You Switch from an HSA to an FSA?
Yes, you can switch from an HSA to an FSA, especially if you recently changed jobs. Many people find that if they still qualify for a high-deductible plan, it is simpler and more convenient to maintain their HSA and the flexibility that comes with it.
Is an FSA the Same as an HSA for Tax Purposes?
As for tax benefits, both FSAs and HSAs are similar in that you make pre-taxed contributions to your savings account. As long as the funds are being withdrawn and used for qualifying medical expenses, you will not be taxed on the funds used. If these funds are pulled prematurely or for non-qualifying medical expenses, you may incur taxes on the amount taken out as well as additional penalties/fees.
Which is Better: HSA or FSA?
Most people who have had experience with both an HSA and an FSA have stated that they prefer an HSA. That’s because HSA’s generally have much more flexibility and allow you to use your funds towards a much more extensive list of medical expenses. You also do not lose your funds if you do not use them up before the end of the plan’s year.
Is it Worth Having a Health Savings Account?
While it may seem rather intimidating having a portion of your paycheck go into an HSA, the amount of flexibility these savings accounts provide proves exceptionally beneficial, especially those who have high deductible plans and find it difficult to meet those out-of-pocket requirements. Funds from your HSA can help you cover those additional costs and provide you with additional security in the case of a health-related emergency.
What are the Requirements for Enrolling in an HSA?
While your employer must offer/enroll you in an FSA, there are different requirements for those interested in enrolling in an HSA, including:
- Cannot be enrolled in Medicare, TRICARE for Life, or TRICARE.
- Cannot be enrolled in additional health coverage except what is outlined under the IRS’s “other health coverage.”
- Cannot be claimed as a dependent on someone else’s tax return.
- You must be covered under a qualifying high-deductible health plan (HDHP).
With an HSA, each adult in the household that meets the above requirements must open their own separate health savings plan. At this time, there are no joint HSA options available to married couples. If you have a child that you can claim as a dependent, you are allowed to use your HSA contributions towards your dependent’s health needs.
Is it Worth Having a Flexible Spending Account?
When presented with the option to contribute to an FSA as part of your employee benefits, most people are a little intimidated by some of the terms and conditions of these saving accounts, such as potentially losing funds that don’t get used by the end of the year. Those who choose to go with the FSA find it beneficial for covering unexpected medical costs that appear throughout the year.
Understanding the Difference Between an HSA and FSA Account is Essential
When choosing between an HSA and an FSA, the primary deciding factor will likely be whether or not your employer provides either. This is especially true if you’re looking to contribute to an FSA, which you can only enroll in if your employer initiates it. For those with a private insurance policy outside of their employer, you can choose to enroll in an HSA of your own. In this case, conduct research and make sure you qualify.
If you have the option to choose one or the other – that’s great! While you likely won’t be required to contribute to either, it would be well worth investigating to see what benefits would be available to you. After all, you never know what kind of medical emergencies may spring up, and unless you have a dedicated savings account of your own for these situations, you may find an FSA or an HSA much more beneficial than you know.
Once you’ve fully educated yourself on all your options, you’ll be able to make a fully informed decision that will benefit both those in search of men’s health and women’s health coverage.
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