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CDHP Basics: FSAs and HSAs

Offering employees attractive benefits is a great way to improve engagement and retention. For example, FSAs and HSAs are healthcare plans that cover medically-related expenses not included under a traditional health plan. However, many people do not know what is included in an HSA or FSA. Before I became an employee at Medcom Benefits, I had no idea what they were either! 

Do you know the difference between an HSA and FSA?

Both HSAs and FSAs allow people with health insurance to set aside money for health care costs, including deductibles, copayments and coinsurance, and monthly prescription costs. You will likely receive a debit card for your account and can use it to pay for qualifying expenses. Both types of accounts also have tax benefits, but these benefits aren't the same.

HSA Plans

A health savings account is a tax-free fund individuals can use to pay for out-of-pocket health care costs.
Employees and self-employed individuals alike can open a health savings account if they meet the requirements. An employee can only have an HSA if they have a high deductible health plan.

FSA Plans

A flexible spending account is a tax-free fund employees can use to pay for out-of-pocket health care costs.
Unlike an HSA, only employees can open FSAs. Self-employed individuals cannot have a flexible spending account. An employee can open an FSA regardless of the type of health insurance plan they have.

Rollover Information

With an FSA, employers can decide whether an employee can keep their unused funds or not.

There are three choices:

  1. FSA Forfeiture: Employee forfeits money, and employers get to keep it
  2. Grace period: Employee has a 2.5 month grace period after the plan year ends to use for expenses. The remaining money after the grace period goes back to the employer
  3. Carryover: Employees can add up to $500 of unused funds to next year's plan (in addition to the contribution limit). Employers decide the carryover limit, and any funds over the limit are the employer's

With an HSA, funds don't expire each year. Rollover money is in addition to the contribution limits.

Whether you decide to offer an FSA or HSA plan, employees will benefit. Tax reduction and employee satisfaction are only two examples of why you might choose to offer an FSA, HSA, or both. FSAs might make a lot of sense for you. On the other hand, the opportunity to grow your investments with an HSA is another great way to make progress on both health and retirement goals at the same time!