Comparing HSAs and FSAs
Which approach is best?
Employers are increasingly looking to consumer driven health plans to help soften the blow of continually rising health care costs. Depending on the model, consumer driven health plans typically include flexible spending accounts (FSAs) or health savings accounts (HSAs).
Introducing consumerism into your health plan requires an evaluation of the benefits and disadvantages of HSAs and FSAs.
What’s an HSA?
Health savings accounts (HSAs) are a growing trend in health care. An HSA is a tax-exempt savings account established for the purpose of paying for the qualified medical expenses of an individual and/or his or her spouse and tax dependents.
What’s an FSA?
A flexible spending account (FSA) is an account in an employee’s name that reimburses the employee for qualified health care or dependent care expenses. It allows an employee to fund qualified expenses with pre-tax dollars deducted from the employee’s paychecks.
Comparing HSAs and FSAs
Type of account
Health Savings Account
Health Flexible Spending Account
Who owns the account?
HSA: Individual/employee
FSA: Employer
Who may fund the account?
HSA: Anyone can make contributions to an individual’s HSA, including employer and/or employee.
FSA: Employer and/or employee
What plans must be offered with the account?
HSA: A high deductible health plan (HDHP) that satisfies minimum annual deductible and maximum annual out-of-pocket expense requirements.
FSA: Most Health FSAs must qualify as excepted benefits to satisfy ACA reforms. To qualify as an excepted benefit, the FSA must meet a maximum benefit requirement and other group health plan coverage must be offered by the employer.
Can unused funds be rolled over from year to year?
HSA: Yes
FSA: No, with two exceptions. A health FSA may include a grace period of 2-1/2 months after end of plan year or it may allow employees to carry over up to $550 ($500 for 2019 plan years) in unused funds into the next plan year.
What expenses are eligible for reimbursement?
HSA: Section 213(d) medical expenses, including:
- COBRA premiums
- QLTC premiums
- Health premiums while receiving unemployment benefits
- If Medicare eligible due to age, health insurance premiums except medical supplement policies
FSA: Section 213(d) medical expenses
Expenses for insurance premiums are not reimbursable.
Employer can define “eligible medical expenses”
May the account reimburse non-medical expenses?
HSA: Yes, but taxed as income and 20% penalty (no penalty if distributed after death, disability, or age 65)
FSA: No
