Even in the best of times, dealing with medical expenses can be a hardship for members. Price spikes, unexpected needs, and other expenses sometimes crowd the budget and make it more difficult to cover needs as they come up. There are some tools available to members, like consumer saving and spending accounts, which can make things easier.
HSAs also offer three different forms of tax protection:
Much like HSAs, FSAs are tax-advantaged, with members able to make pre-tax contributions and pay for approved expenses, per IRS rules. Also, members determine at the beginning of the plan year how much they want to contribute to the account throughout the year, and the full amount is available for use on the first day of the plan year, regardless of how much the member has contributed up to that point.
Finally, FSAs are governed by IRS limits on annual contributions. In 2023, the limit is $3,050 for individual contributions and a total of $3,550 for combined contributions from members and employers. In addition, a Dependent Care FSA, which allows members to pay for dependent care like daycare, summer day camp, or other care expenses, is limited to an annual contribution of $5,000 for married couples filing jointly, or $2,500 for single filing.
Both types of FSAs are useful tools for members managing expenses both large and small, particularly planned expenses such as surgeries, family planning, and childcare.
Health Savings Account (HSA)
For members enrolled in a Qualified High Deductible Health Plan (HDHPs), the HSA can be a powerful tool. The HSA is a member-owned account, meaning that it follows the member from year to year and job to job, which members can use to pay for approved expenses (per IRS rules). Members contribute to the account, and those funds are theirs. In addition, the money members contribute can also be used to invest, creating the opportunity for year-over-year growth.HSAs also offer three different forms of tax protection:
- Members can contribute pre-taxed income to the account
- Returns on investment are not taxed
- Expenditures on approved expenses are not taxed (non-approved expenses are taxed at 20%)
Flexible Spending Account (FSA)
Unlike HSAs, flexible spending accounts are employer sponsored programs, and as such they are managed and controlled by the employer. This means that if a member leaves, they almost always forfeit anything left in the FSA. Also, most FSAs are subject to a “use-it-or-lose-it” rule, meaning that unspent money goes back to the employer at the end of the year. Some plans have a carryover provision to keep up to $610 for the next year, and some employers offer a grace period to spend remaining funds in the first few months of the following year, but for the most part members are encouraged to make full use of the funds when possible.Much like HSAs, FSAs are tax-advantaged, with members able to make pre-tax contributions and pay for approved expenses, per IRS rules. Also, members determine at the beginning of the plan year how much they want to contribute to the account throughout the year, and the full amount is available for use on the first day of the plan year, regardless of how much the member has contributed up to that point.
Finally, FSAs are governed by IRS limits on annual contributions. In 2023, the limit is $3,050 for individual contributions and a total of $3,550 for combined contributions from members and employers. In addition, a Dependent Care FSA, which allows members to pay for dependent care like daycare, summer day camp, or other care expenses, is limited to an annual contribution of $5,000 for married couples filing jointly, or $2,500 for single filing.
Both types of FSAs are useful tools for members managing expenses both large and small, particularly planned expenses such as surgeries, family planning, and childcare.