Every year, I have to re-learn the health plan-related acronyms being tossed around at the company-wide open enrollment meeting. Since we’re on a High Deductible Health Plan (HDHP), I can use a Health Savings Account (HSA) to get a grip on medical bills. Having an HSA will help pay for the out-of-pocket expenses that the insurance plan doesn’t cover until the higher deductible is met…so I’ve read. My company will give me a lumpsum of money at the beginning of the period and an additional $10 each pay period. Free money! Yay!
The HSA account belongs to me, even if I change jobs. Although I opened an HSA at a credit union when I joined the company, I haven’t used it to my advantage. Shame on me.
At my old job, I had a Flexible Spending Account (FSA) or “use it or use it” account. If I remember correctly, I allotted a certain amount of money at the beginning of the year. I was able to use the full amount right then. The allotment was broken down into payments that was deducted from my check each pay period. Basically, my company gave me a lumpsum of money, and I paid them back in installments throughout the calendar year. I was able to use my FSA to pay off my braces in full before I left that job even though I’d be sporting a grill full of steel well after.
Both the HSA and FSA allow you to set aside pre-taxed dollars each year to pay for eligible healthcare expenses during the plan year. You save by not paying taxes on this money. The FSA let’s you spend money during the plan year, while the HSA let’s you roll over funds year after year and earn interest for future expenses.
Here are the main differences between the two accounts, according to Blue Cross Blue Shield.
Health Savings Account (HSA)
- You can only have an HSA if you enroll in a high-deductible insurance plan.
- You own the account. You can set it up with any bank of your choice.
- Anyone, including your employer and relatives, can put money into the account.
- Money taken out of your paycheck by your employer for the account isn’t taxed.
- Money put into the account that’s already been taxed (for example, money that was a gift), is tax deductible.
- Money in the account can roll over from year to year. (No “use it or lose it” rule.)
- You can invest the money.
Flexible Spending Account (FSA)
- The employer owns the account, but you get to decide what qualified medical expenses to pay from your FSA. The employer sets up the account.
- Only you and your employer can put money into the account.
- You can only deposit money into your FSA through payroll deduction. That money isn’t taxed.
- Some employers let you carry up to $500 into the next year. Otherwise, any money left in the account at the end of the year goes back to your employer. (“Use it or lose it.”)
- You can’t invest the money.
Here’s a helpful comparison chart of the FSA, HSA and HRA from Bank of America. Here’s a hypothetical example of savings:I think I finally have a grip on this. Let’s hope I won’t be staring blankly at the meeting next year.