As we begin a new year, many Texans are looking for more options to help them maintain financial stability as health care costs continue to rise. Two available options are Flexible Spending Accounts (FSA) and Health Savings Accounts (HSA). It’s important to understand the differences between FSAs and HSAs when considering your Texas health insurance options.
What is an FSA?
An FSA is an employer-sponsored benefit that allows you to set aside a predetermined amount of your income for medical expenses not covered by your health insurance policy. The money is removed from your paycheck “pre-tax,” thereby decreasing your taxable income and increasing your spendable income.
There are also some drawbacks to FSAs. First, the beginning of the year is the only opportunity you have to enroll in an FSA, unless there is a significant change in family status. Second, the medical expenses that can be reimbursed through your FSA are determined by the IRS, so you must be familiar with the list of approved expenses before determining how much money you want withdrawn from your paycheck. Finally, any unused money in your FSA at the end of the year is lost. It DOES NOT roll over; this is sometimes referred to as a “use-it-or-lose-it” plan.
There are many benefits to having an FSA, but much preparation must be done before using this tool to maintain your health care expenses.
What is an HSA?
An HSA is a tax advantage savings account that allows you to contribute and withdraw money for qualified medical expenses without being taxed. Similar to an IRA, HSAs are investments, controlled by the owner (you), allowing you to grow your wealth while being taxed less and preparing for future medical expenses. Qualified medical expenses include doctor visits, prescriptions, dental appointments and even massages and health club memberships. Another advantage to having a Texas health savings account is that any money contributed to your account will roll over every year on a tax deferred basis, which allows your money to accumulate, unlike the “use-it-or-lose-it” FSA.
The only requirement to opening an HSA is to have a high deductible health insurance plan, which is a type of health plan that has a higher deductible than common health care plans and has a maximum out-of-pocket limit. These plans usually have lower monthly premiums, providing HSA owners another way of decreasing health care costs.
Since an HSA allows you to prepare for future medical expenses, decrease taxes, increase opportunities to earn wealth and pay smaller monthly health insurance premiums, it’s a great option for combating the rising cost of health care.