It is becoming increasingly popular for insurance policies to offer health savings plans as a way to lesson the burden of out of pocket heath care costs. There are two types of health savings plans: Flexible Spending Accounts (FSA) and Health Savings Accounts (HSA). In today's blog we will explain how both of these plans work, their differences, and how to you can maximize yours.
What are FSA and HSA plans and which is right for me?
FSAs and HSAs are both tax-advantaged accounts that you can fund to save for medical costs; however, they are very different in origin and operation.
FSAs can only come from employers but are not a required offering by your employer. If your employer does not offer an FSA you cannot sign up for an individual account. These accounts are prefunded by your employer at the beginning of the year and then payments are withdrawn from your paycheck regularly to "pay-back" your employer. These payments are pretaxed. At year-end you must use the funds left in the account. Very few FSAs allow a small amount of rollover, but, in most cases, if the funds are not used by the end of the year you will lose access to it. Because you pay for these accounts pretaxed, it is best to estimate your healthcare expenses for the upcoming year and enroll in an FSA to cover as much of your estimated healthcare expenses as possible.
HSAs are designed very differently from FSAs. These accounts are only available to people who have high-deductible health plans. The maximum contribution limit for these plans is determined by the government. If your high-deductible health plan qualifies and your company does not offer an HSA, you may enroll in an individual HSA with tax-free contributions. Unlike FSAs, the funds within an HSA can roll over from year to year.
What are some qualified expenses?
The qualified expenses of the two are the same. A long list of qualified benefits can be found here. Prescription eyeglasses and sunglasses, contact lenses, and contact lens solutions are a great way to use what is left in your accounts before the year ends. This is an ideal time to get that second pair of glasses you have been waiting for!
