When enrolling in benefits with your employer, it is important to understand what you are signing up for and what is available for you. One of the biggest questions that the human resources department usually receives is regarding medical insurance. When enrolling in medical benefits, there are items called an FSA or HSA. There a several differences between the two of these benefits. Let’s discuss the differences between the two benefits.
An FSA stands for Flexible Spending Account. These accounts are less flexible than an HSA and are owned by the employer. These accounts have many stipulations and qualifications that I will list below.
- Must be set up by the employer
- Only a $2,650 benefit per year maximum
- This account is owned by the employer and lost with job change
- The employer decides whether the funds expire at the end of the year
- Employees can roll over $500 into next year’s FSA
- You can only change your contributions at open enrollment, if your family situation changes, or if you change your plan or employer
- You may have to submit expenses to be reimbursed
In comparison, an HSA:
- Requires a high-deductible health plan (HDHP)
- Cannot be eligible for Medicare
- Cannot be claimed on another person’s tax return
- The annual contribution limits for an HAS is up to $3,450
- An HSA I owned by the individual and carries over with employment changes
- Unused funds roll over every year
- You can change contributions anytime as long as you don’t go over the limits
- Savings can be taken out of the account tax-free after age 65
There are several more moving parts to explain in our comparison of the two plans. Let’s compare the qualifications needed to set up a HSA versus an FSA.
HSA’s have far more restrictions. To qualify, you must have a high-deductible health plan of more than $1350 as an individual and $2700 as a family. The HDHP must be your only health care plan. You cannot open an HSA after Medicare eligibility or being claimed as a dependent on another person’s taxes.
HSAs are available to self-employed individual as long as they have an HDHP. In contrast, FSA’s must be set up by the employer, so self-employed or unemployed individuals do not qualify. With an FSA, there is less flexibility with lower contribution amounts. FSAs do not transfer or follow you if you leave the employer. HSAs are privately owned by individuals, so they follow you wherever you go.
With an HSA, contributed funds roll over, one of the biggest benefits. In an FSA, unused funds are not automatically carried over because they belong to the employer, not the employee. FSAs can use the following options:
- FSA Forfeiture
- Grace Period
In a forfeiture, the employee forfeits the unused money. With the grace period, employees are given two and a half months to spend the unused money. In a carryover, employees can rollover up to $500 of unused money to the next year’s plan.
The real question that everyone wants answered is simple: FSA or HSA: Which is better? The question is really up to the individual themselves. Most of the time, it really is not a matter of choice as it is not up to you which one your employer opts into. You just choose whether you enroll or not.
Hopefully this article has allowed you further insight into the main differences between an HSA and FSA so that you are better informed as a consumer of these benefits.