Pro’s and Con’s of HSAs and FSAs

April 4, 2019

 

Health care benefits are improving as employers seek to attract and retain the best talent in a competitive job market. Savvy employers are offering more options to keep them ahead of the curve. Health Savings (HSA) and Flex Spending Accounts (FSA) are two you should know about.

These benefits allow employers to help their workforce save money on out-of-pocket costs associated with their health. In recent years participation in Health Savings and Flex Spending Accounts continues to rise. Here’s what you need to know before deciding on which benefit is right for your employees.

What is a Health Savings Account?

A Health Savings Account allows an employee to set aside money from their income before taxes to cover expenses for health care such as medication, chiropractor visits and co-pays for appointments. Participants in a health savings account have access to the money through a debit card they can use for health care transactions, funded through pre-tax deductions from their paycheck.

HSAs are available for those signed up for a high deductible health plan, which means the employee has to pay more before insurance takes over. The thought behind an HSA is that the extra money put aside pre-tax for healthcare costs – up to $3,450 for an individual or $6,900 for a family – can help pay for co-pays and other out-of-pocket medical expenses for those with high-deductible plans. While not required, employers can contribute to their employee’s HSAs.

What is a Flex Spending Account?

A Flex Spending Account allows your employees to pay for certain medical expenses not covered by insurance, including doctor’s visits and medications, with pre-tax dollars. Through the agreement, the employee submits a receipt for their medical expense for reimbursement through their health insurance provider.

FSAs help save money on out-of-pocket medical expenses insurance won’t cover. Specialist visits, medication, and co-pays are covered through FSAs. Much like HSAs, employers can contribute to their employee’s FSAs. The maximum amount an employee can have reimbursed through their FSA is $2,700 a year.

 Pro’s and Con’s: HSAs

HSAs offer flexibility for employees to handle medical costs not covered by their high deductible health plan. The additional pre-tax money set aside specifically for health care costs can be critically important to cover emergencies such as specialist visits and medications.

The major downside surrounding HSAs is that they are only available for those on high deductible health plans. These plans are generally negative for employees, with higher out-of-pocket costs for care before insurance takes over.

An HSA can help employees who choose a high deductible health plan, but there can also be a lot of confusion around how it works. When discussing benefits options available, make sure there is a clear definition of what the HSA is and how it works to keep your employees informed of all options available to them.

Pro’s and Con’s: FSAs

Pros & Cons: HSA vs FSA

A benefit of FSAs is that employees save tax dollars on their approved medical costs by getting money back for their out-of-pocket medical expenses.

These accounts also allow employers two options to let employees use the money left over on their FSA at the end of the year. Option one is to offer a two-and-a-half-month grace period to spend the rest of the previous year’s money. The second option would allow $500 from the previous year to roll over into the next year for the employee.

FSAs come with downsides for employers, including an additional burden on HR managers to coordinate the paperwork needed for employees to get reimbursed for their medical expenses. The person in your workplace who manages this benefit will always need to remain organized to make sure your employees are getting the most out of this benefit.

What’s the right choice?

That depends on what type of coverage you offer for your employees.

If you have a high-deductible plan your best option to lower your workforce’s health care costs will be to add an HSA option for employees. This gives them the option to save money on their health care needs.

An FSA is a great benefit to offer if you have a lower deductible plan. Employees can save additional money by being reimbursed, tax-free, for their out-of-pocket health care expenses.

Ultimately, the decision needs to be made on what’s best for your company and your employees. Both have their downsides, but both also offer a great benefit.

If you have questions on which benefit makes the most sense for your employees, consult an HR expert to determine the best course of action.

INSIGHT WRITTEN BY:
AccessPoint Team