Employees who are interested in setting money aside for medical costs have several options to choose from. Many employers offer both FSA (flexible spending accounts) as well as health savings accounts (HSA), but their different features can be confusing. The right plan can save people lots of money and maximize contributions toward their health care costs. That’s why knowing the advantages and disadvantages of an FSA or HSA is critical.
Check out the similarities between FSAs and HSAs
While there are several key differences between an FSA and an HSA, they have some similarities. They are both designed to allow people to set aside funds for health care costs, such as co-pays and prescriptions. Employers can contribute to both an FSA and an HSA, increasing the amount of money available.
Both also feature tax benefits for participants in that the contributions are taken out before taxes, and the distributions are also not taxed. Employees can enroll in either an FSA or an HSA, but not both.
Learn about the features of an FSA
There are no enrollment criteria for an FSA and participants do not need to carry a high deductible health plan as they do for an HSA. The money in an FSA must be used by the end of each year or the participant loses it.
The plan has a maximum annual contribution, and that amount can be adjusted during each annual enrollment period. If the participant leaves their company for a different job, they forfeit the money in the account.
What you need to know about an HSA
Not everyone can participate in a health savings account. Participants must carry a high deductible health plan in order to enroll. Contributions to the account can be adjusted at any time of year and aren’t limited to the annual enrollment period.
The maximum annual contribution is higher than the limit on an FSA. Also, the money in an HSA does not have to be used by the end of the year as an FSA does. When the participant changes jobs, the HSA follows them.