Medical expenses can be outrageous, even with health insurance. And so, it is important to consider total health care costs when choosing health care options for your business, not just insurance premiums. Fortunately, Resourcing Edge offers a couple different options to help ease the medical financial burden: Flexible Spending Accounts (FSA) and Health Savings Accounts (HSA). Understanding the differences between the two will help you provide the type of benefits your employees are looking for and increase your employee retention.
What is an FSA – Flexible Spending Account?
A Flexible Spending Account gives you the ability to use pre-tax dollars to pay for qualified medical or dependent care expenses. You can choose how much money to elect/contribute to your Health Care and/or Dependent Care FSA up to the limit for the current year.
What types of FSAs are there?
The Health Care FSA covers all IRS-approved expenses, including deductibles, co-pays, prescription drugs, select dental and vision care expenses, and many other items.
A Limited Purpose FSA is combined with a Health Savings Account (HSA) and covers Vision and Dental expenses ONLY.
A Dependent Care Assistance Program (DCAP) – also known as a Dependent Care FSA – covers employee’s eligible dependent care expenses, such as preschool, summer day camp, before or after school programs, child and/or adult daycare.
A Few Things to Keep in Mind regarding your FSA:
The Health Care FSA Election-Contribution Limit for 2021 is $2,750 per Individual. The full health care FSA amount is fronted, and pre-taxed deductions will occur throughout the calendar year to match the elected amount.
The Dependent Care Contribution Limit for 2021 has increased from $5,000 to $10,500 under the American Rescue Plan Act.
When you make your elections during Open Enrollment, please note that the Flexible Spending Account is on Calendar Year and not the Plan Year. This means that your election will become effective 1/1/22.
Your funds must be used by March 31st the following year. This means that you can submit claims through 3/31/23.
What is an HSA – Health Savings Account?
A health savings account (HSA) is a tax advantage medical savings account for taxpayers who are enrolled in a high deductible health plan (HDHP). Unlike a flexible spending account (FSA), HSA funds roll over and accumulate year to year if they are not spent. HSAs are also owned by the individual.
With a High Deductible Health Plan, you can choose to elect a Health Savings Account along with a Limited Purpose FSA.
For 2021, if you have self-only HDHP coverage, you can contribute up to $3,600. If you have family HDHP coverage, you can contribute up to $7,200. Also, for participants ages 55 and up the catchup contribution max is $1,000.
- FSAs and HSAs offer tax benefits and have annual contribution limits.
- HSA funds roll over, FSA funds do not (unless the employer allows up to $500 in some cases).
- FSA funds must be used by the end of the plan year, or they will be forfeited (a grace period of 2 ½ months may be offered).
- HSA funds can be invested, FSA funds cannot.
- FSA must be set up through you as the employer.
- Employees cannot contribute to both HSA and FSA unless it is an LPFSA for dental and vision expenses.
Contact your Client Account Manager if you are interested in learning more. We will help you identify the best benefits for your business, including creating, managing, and maximizing benefits for your employees.