We hear the question all the time -- especially this time of year -- "Should I get an FSA or an HSA?" If you've read our columns for a while, you know there's really no "correct" answer, since what's right for some might not be right for others. But, if the Health Savings for Families Act has anything to do with it, that question would be a thing of the past.
So, for this week's column, we're forgoing the usual article link and discussing this potentially huge development firsthand. Let's see what's going on.
In this new bipartisan bill, introduced this week by Congress members Jennifer Wexton (D-VA), Earl Blumenauer (D-OR) and Mike Kelly (R-PA), there's a proposal to allow spouses to take advantage of both health savings accounts and flexible spending accounts, as long as one participant isn't covering the expenses of the other.
In the current system, a household can have both an FSA and an HSA, but they can't contribute to or use both, or they'll face tax penalties as a result. If this bill gets moved to law, that penalty would be eliminated, and households will be able to take advantage of both types of accounts.
This is a huge win for any family unsure of which tax-free account best serves their needs. As you might know, "HSA" and "FSA" are used fairly interchangeably during open enrollment, but in reality, there's plenty of distinct differences between them -- this bill would allow families to explore all options and make more educated decisions.
Not only does this expand coverage options, but also allows HSA owners to make the family-level contribution each year -- that's double the amount of tax-free savings allotted, and making more funds available to invest in a family's current and future health.
Obviously, we're excited about the possibility of users getting to experience both types of accounts (though we may miss answering that question every open enrollment). But perhaps no one expressed it better than Wexton, who said in a statement, "Instead of penalizing families for responsibly managing their money—as the existing law does—my bill allows couples to save and spend in the way that's easiest and most affordable for them."
Wait? These are eligible?
Help identify pre-diabetes or determine how well a person's diabetes is being controlled following diagnosis.
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Fridays (with Benefits) is a weekly roundup of the latest headlines about employee benefits -- from FSAs to fitness programs and everything workplace wellness. It appears every Friday, exclusively on the FSAstore.com Learning Center. And for the latest info about your health and financial wellness, be sure to follow us on Facebook, Instagram and Twitter.
Raise your hand if this sounds familiar. You spend hours preparing for a company meeting on employee benefits. But when it's time to share information, some employees are visibly less interested. By the end of the meeting, eyes have glazed over, and attention has disappeared.
Fast forward to open enrollment. Maybe it's a little early to tackle this, but this same group of employees is pretty disengaged. And they are less likely to understand what your company offers. So it's better to start now and avoid confusion later.
Millennials may be first to say, "I've got this." But the truth is, open enrollment can be confusing and stressful. Key details may be glossed over. And as a result, they may be less likely to opt in. Here are some tips on how to spark interest before the onslaught of paperwork begins.
If you're offering the types of benefits millennials value most — great. But do they actually understand what you offer? Communication is critical. Try going beyond in-person meetings, letters, or emails. Share the message in bite-sized pieces through texts, blog posts, or videos. Repeating what matters may be the key to boosting millennial engagement.
Highlight ways to save
Millennials may have a reputation for frivolous spending. But that's not the case with healthcare. Research has revealed nearly half of millennials have skipped or delayed care to save money. Become a trusted resource and advocate by making benefits easier to understand. Break healthcare benefits down into manageable chunks.
Oh, be sure to ditch the industry jargon. These might be common terms to some, but it always helps to decipher things like coinsurance, copayment, or out-of-pocket maximum, providing real-world examples of how each of these will impact their wallets.
Flexible spending accounts (FSAs) are another way to save on taxes. Money shifts into a special account before being paid. Explain the "use it or lose it" rules and why it requires some extra planning. There's no "magic number" that works for all employees. Everyone's needs are different. Ask these questions to guide them through the decision process:
- How much money did you spend last year? Sifting through old receipts can be a snooze, but it's helpful to have a baseline for planning purposes.
- Do you have any major health expenses planned? Time to stop putting off that root canal? Or is your family expecting a baby? You're likely to use 100% of the year's FSA money — and more. But if you're expecting routine check-ups, contributing the full amount may not make sense.
- Does your company offer a high-deductible health plan? A recent survey found most millennials don't understand how they work. To make matters worse, 70% waste up to $750 because of mistakes at open enrollment. Maybe a health savings account (HSA) is a viable alternative.
Grab attention before open enrollment
No one wants to read a stack of papers. Try delivering the information other ways. Consider which benefits are most valuable to millennials and highlight them — more than once. Helping your employees make the most of their benefits could save them a lot of money. Best of all, they may want to stick around longer.
New FSA-eligible arrivals...
New to FSAs? Need a refresher course in all things flex spending? Our weekly Flex-Ed column gives you a weekly dose of FSA Living 101, offering tips for making the most of your tax-free funds. Look for it every Thursday, exclusively on the FSAstore.com Learning Center.
Lowering the cost of healthcare is a smart move, no matter how you look at it. Aside from paying lower premiums and taking care of your overall health, many people take advantage of tools that help make their health care costs tax deductible. These include a health savings account (HSA) and a flexible savings account (FSA).
Even though they're referred to interchangeably, these are very different types of accounts. Both HSAs and FSAs are similar in that they help you make qualified health purchases using tax-free funds. But with limited exceptions, you can't have both. This means if you want to take advantage of your employer's flexible spending account, you may not be able to contribute to your HSA.
There are some instances in which you may be able to elect both accounts at once. You can technically have both if you have a certain type of FSA and meet the qualifications of an HSA.
Run of the mill just won't do
First, let's quickly go over what you need to qualify for an HSA:
- You're currently covered under a high-deductible health plan (HDHP)
- This plan has an minimum annual deductible of $1,350 or $2,700 for families
- Your plan has an annual out of pocket maximum of $6,750 (or less) or $13,500 for your family
- You aren't currently on Medicare or supplemental health care plan (including a spouse's employer- sponsored plan)
- You're not considered a dependent under anyone else's tax return
- You're not covered under other disqualifying health coverage, including yours or your spouse's enrollment in a traditional FSA
An FSA counts as "other health coverage," according to IRS Publication 969. So your run- of- the- mill FSA will probably not be compatible with an HSA. And it's important to note that if your spouse elects an FSA that's not compatible with an HSA, your ability to contribute to an HSA goes out the window, as you're technically considered covered under that FSA (whether your spouse adds you as a dependent to the plan or not).
If your employer offers either a limited-purpose health or a post-deductible health FSA (also referred to as an "HSA-compatible FSA"), start celebrating! It means you can have an HSA alongside your FSA. And who doesn't want more tax-free spending on qualified medical expenses?
It doesn't have to be confusing...
Before running off and opening an FSA alongside your HSA, make sure you understand the pros and cons of each. Look carefully at your lifestyle to see if it even makes sense. You want to know if you'll be able to use up your FSA funds as you'll lose them after the end of the plan year (with the exception of those with deadline extensions or a $500 rollover).
This type of account typically only allows you to spend money on qualified dental and vision expenses. The account can also be used for your spouse and qualifying dependents including children through the age of 26.
Let's say your spouse goes to the dentist only to find out he needs a root canal within the next few months. It might make sense to contribute to a limited-purpose FSA because you can save your HSA funds for something else. You can then make a contribution to your limited-purpose FSA for the root canal.
Remember to check with your plan administrator or HR department about all of the details of your plan, including which plan will automatically pay first. If the plans are set up so that your HSA funds are withdrawn first, you may want to see if it's possible to have FSA-eligible expenses withdrawn from the FSA first, or if you'll have the ability to request that they be transferred from the HSA to the FSA.
This isn't a common type of FSA. Before you hit your minimum deductible for the year, expenses are limited to dental and vision only with this account. Once you hit your minimum HSA deductible for the year, you can use the money from the post-deductible FSA account for all qualified medical expenses.
Just remember that if you reimburse an expense from your HSA, you can't also do it with your FSA.
So, let's say your minimum deductible is $2,700 for your family in your HSA. You can still access your post-deductible FSA for any vision and dental expenses until you reach $2,700 in expenses incurred that apply to your deductible. This plan would make sense to those who anticipate vision and dental expenses, or expect to set aside more than the HSA will allow.
Yes, you can have an FSA with an HSA
As long as your employer offers either a limited-purpose or post-deductible FSA, you can keep your HSA with no issues! Remember, FSA funds disappear after the plan's year is over with a few exceptions, so make sure you'll definitely use that money before making any contributions.
If so, you can let your HSA contributions compound and grow while still being able to take advantage of tax-free medical spending.
From FSA basics to the most specific account details, in our weekly Asked and Answered column, our team gets to the bottom of your most-pressing flex spending questions. It appears every Wednesday, exclusively on the FSAstore.com Learning Center. And for the latest info about your health and financial wellness, be sure to follow us on Facebook, Instagram and Twitter.