With health care costs rising for families in the United States every year, having a flexible savings account or a health savings account can really help cover costs. These accounts have money put into them on a pre-tax basis and can be used for dedicated health costs. They can cover a deductible, be used for co-pays, and for those emergency health expenses that happen every year. Each has some specific advantages that may be worthwhile in your circumstances – let’s take a look.
FSA Funds Expire Every Year
Believe it or not, most workers don’t even bother with a FSA or maximize their contributions to the employer’s plan. An employee can contribute up to $2,500 to their FSA and many employers directly match this amount. By using a debit card or other access, like a check, qualified expenses can be paid out of the FSA so that direct impacts to income are mitigated to some extent. That’s the good news. The bad news is that if you don’t use your share of the FSA every year, the funds disappear, including funds you’ve directly contributed.
On the other hand, an HSA will roll over extra funds year to year. You can also contribute more money to an HSA on a pre-tax basis, but that’s because these funds are designed to help individuals and families mitigate the costs of high deductible health care plans. Your health care insurance must meet deductible and maximum out of pocket qualifications for you to qualify for an HSA, and for 2014 the individual deductible is $1,250. The family deductible is $2,500.
Why Aren’t More People Using These Plans?
Sometimes HSA and FSA plans aren’t utilized because workers don’t realize they exist. Others may not realize that they now qualify for an HSA when before they did not. As for the FSA, the thought of contributing up to $2,500 of income that simply disappears at the end of year is a big detriment! Ultimately, however, these savings accounts are just that: a savings account. You’re taking money you’ve earned and getting a pre-tax incentive to save it for health expenses. For families living paycheck to paycheck, they’d rather take the cash now.
Both the HSA and FSA have also fallen out of favor since 2011 because many of the prescription drug coverage that were initially covered by the plan were eliminated that year. Now only insulin is covered by HSA/FSA accounts, and considering prescription medication is often one of the biggest expenses faced by the average person today, it makes more sense to save that money outside of these accounts so it can be used for what they need.
Which Savings Account Is Right For Me?
If you qualify for an HSA, it is probably better to make that your primary contribution for health savings. With the higher limits and the ability to roll over unused funds year-to-year and have the account continually build makes a lot of sense to do. Not everyone qualifies for the HSA, however, so if that scenario, the FSA does make sense if you have a lot of health related expenses each year.