There’s no denying that healthcare can be costly. Even if you have insurance through your employer, you might consider taking advantage of one of the federal government programs that encourage saving for medical expenses not covered by insurance.
The most common type of accounts offered to employees is the Health Savings Account (HSA) and the Flexible Spending Account (FSA). The most significant difference between flexible spending accounts (FSA) and health savings accounts (HSA) is that an individual controls an HSA and allows contributions to roll over, while FSAs are less flexible and are owned by an employer.
Apart from this, there are several key differences between HSAs and FSAs.
Both HSAs and FSAs allow people with health insurance to set aside money for any healthcare costs referred to as “qualified medical expenses”. This includes deductibles, copayments and coinsurance, and monthly prescription costs.
You usually receive a debit card that you can use to pay for qualifying expenses. And both types of accounts have tax benefits as well.
Let’s discuss HSA vs. FSA – the difference
Although FSAs and HSAs both allow people to use pre-tax income for eligible medical expenses, there are considerable differences between HSAs and FSAs. Those differences include the qualifications, contributions limits, rules for rollovers and changing contribution amounts, and withdrawal penalties.
Qualification: The qualification for FSA must be set up by the employer while HAS is available only to people who have a high-deductible health plan, or HDHP.
Annual Contribution limits: The limit for FSA is up to $2,650/individual and up to $5,300/household. While for HSA, it’s up to $3,450/individual and up to $6,900/household.
Account Ownership: FSA is owned by the employer and lost with a job change, unless eligible for continuation through COBRA; while HSA is owned by individuals and carries over with employment changes.
Rollover Rules: In FSA, employees can roll over $500 into next year’s FSA, but it’s decided by the employer. In HSA, unused funds roll over every year.
Penalties for Withdrawing Funds: You may have to submit expenses to be reimbursed by FSA and depending on the employer, you may not have access to funds for nonmedical expenses. While in HSA, savings can be taken out of the account tax-free after age 65 and if used before 65, for nonmedical expenses, it is subject to a 20% penalty and must be declared on the income tax form.
By looking at the above HSA vs. FSA comparison, you can choose the one that best suits you.
Overall, the higher limits and contribution rollover of the health savings account make it a better choice if you can qualify. HSAs are more flexible than FSAs, allowing you to save for potential medical expenses and accumulate money over time.