The high medical cost in the USA is a major issue for the residents. High costs for general checkups and other medical operations can not be borne without any provisions. There are various factors that are responsible for these extraordinary costs. The low-income groups face a problem as they are not capable of meeting the cost. If you are an employee, then you have different medical plans that you can use to compensate for the medical expenses. Major medical plans are Health saving accounts and flexible spending accounts. Let’s see the comparision between HSA vs FSA.
Both accounts have different pros and cons that can be analyzed with the help of comparative analysis. The comparative analysis would refine your choice.
HSA vs. FSA analysis will provide you a deep understanding that will help you in a better selection.
What are HSA and FSA?
The HSA and FSA are both medical saving accounts in the USA. These accounts provide the medical expenses saving facility.
HSA (Health Saving Account):
The HSA or health saving account is a medical saving account for the US taxpayers. The account provides the tax benefit. You do not have to pay any tax on the contribution made in the HSA account. The limits for the account contribution are fixed. If you have an account with HDHPs or high deductible health plans, then you can open an HSA. The main benefit of HSA is the roll-over facility for the contribution.
You can rollover and carry forward the amount of contribution to the next year. Also, you can contribute a part of annual earnings as an annual contribution. Your family members can also add contributions (either employed or unemployed) and can deposit the contribution if they qualify for the eligibility conditions.
FSA (Flexible Spending Account):
FSA or flexible spending account is quite similar to the HSA or health saving account. The account also entertains the tax benefit. You can use this account to reimburse medical and dental-related expenses. You can contribute a particular portion of the earnings to the account every year. Your employee can also contribute to this account. It is also known as the “Flexible Spending Agreements”. This account does not allow you to roll over the contribution to the next year.
After understanding this medical saving account, now here are the features of both accounts and arrangements that will provide you a quick insight.
Features of Medical Saving Accounts (HSA and FSA):
- Both accounts entail the tax advantage.
- Employees and employers both can contribute the funds from the annual earnings of the employee.
- The purpose of the health savings account can use to pay the dental and medical expenses.
To select a better medical saving account, you need to analyze the health saving account and flexible spending account. You can analyze in terms of contribution, reimbursement of the medical expenses, benefits related to taxes, and other parameters.
FSA vs. HSA:
The Health Saving Account vs. Flexible spending account provides a comparative analysis for both types of accounts that will help you in the future to select the best plan. Following are the comparative parameters for the HSA and FSA:
Eligibility Requirements for the Account:
The eligibility criteria for both accounts are different. For HSA, you must have a high deductible health plan, but the flexible spending account does not require the HDHP. The employer must provide and allow the arrangement of FSA.
The contribution limit in the case of HSA is high as compared to the FSA. In HSA, the employers and employees both can add the contribution. If the family members fulfill the qualification, then they can put the money in the HSA. In the case of HSA for families, you can contribute the amount at double the rate.
You can contribute a maximum of $3,600 as an individual and if you open an HSA for family, then you put a maximum of $7,200.
In FSA, you can add the contribution with low limits, but you can not add double amounts of contribution in case of family saving arrangements.
You can contribute up to $2,750 as an upper limit of the FSA. You can not contribute more than this amount.
|Contribution limit||$3,600 and $7,200||$2,750|
The roll-over facility is related to carrying forward the amount that is unused after reimbursement of the expenses. In HSA, you can carry forward the amount of contribution in the account at the end of the period after paying all expenses.
The FSA does not allow you to carry forward the amount next year. You can forfeit the amount of contribution or unused amount at the end of the period after paying all the medical expenses.
Alteration in Contribution Amount:
The contribution amount is fixed with the consent of employer and employee, medical insurance plan, and employee profile. In HSA, you can change the level of contribution. In other words, you can increase or decrease the amount of contribution up to the maximum contribution limit.
And in FSA, you can’t alter the contribution amount during the year. The employer generally fixes the amount that changes in case of change in the family status only.
Benefit of Tax:
The saving account entails the tax benefits. In HSA, the contribution amount is tax-deductible, but the distribution is pre-tax. The pre-tax amount is the amount before tax.
In FSA, the amount of contribution and distribution is tax-free. The tax implication on any expenses and contributions affects the accounts.
Amount Withdrawal from Account:
The HSA account allows the withdrawal from the contribution funds at any time. It encourages the penalty of 10%, but the FSA account does not allow the withdrawal at any time.
Transfer of Account in Case of Job Change:
The change in the job may or may not transfer the amount of contribution. You can not transfer the account with the job in the case of an FSA ( flexible spending account). You can transfer the funds from the jobs.
Investment from the Funds in the Account:
The funds in the account can be used for investment purposes. The unused and remaining funds of contributions can invest in the securities for health saving accounts. FSA does not allow you to invest the funds in the account after paying all the expenses.
These are very important parameters that you can use to check the difference between HSA or FSA. The difference between the accounts will help in future investment. Now you can perform comparative analysis for both the accounts with the short explanatory view:
|Eligibility requirement||Requires an account with a highly deductible health plan.||Does not require any eligibility with HDHPs.|
|Contribution amount||Limits are different for individuals and families.||The employer once set the contribution up to the limit of $2,750.|
|Rollover facility||The amount of contribution can carry forward to the next year.||Can not roll over the amount at the end of the period.|
|Benefit of tax||It is tax-deductible and the amount of distribution is pre-tax and that does not require the tax.||The number of contributions is pre-tax. The distribution is also pre-tax.|
|Withdrawal of the amount||The amount of contribution can be taken out during the year with10% penalty.||It does not allow the mid-time withdrawal from the account.|
|Investment from the funds||It allows investment from the funds.||FSA does not allow the investment from the account.|
|Change in the account with a job change||The amount of HSA clubs with another account in case of a job change.||It does not transfer the funds for the job transfer.|
These differences between HSA and FSA will act as a guide for the new investor in the country. You can analyze every factor and then you can choose or select the best plan for the present and future period.
Special Consideration: FSA vs. HSA:
Before analysis, if you had to select the best plan between these two, it would be a difficult choice. But now after analysis of different factors, you can compare the results and select the plan.
After considering the overall performance of the plans, the health saving accounts look more attractive than the flexible spending account. The HSA or health saving account has different benefits like you can contribute more funds, you can withdraw the amount at the time of requirement. It allows investment with the unused amount during the year. It allows the transfer of the amount to the next year’s funds if the amount in the account is remaining after paying the medical expenses.
The Health savings account (HSA) enjoys more benefits as compared to the flexible spending account (FSA). In other words, it is an important medical insurance account that reimburses medical and dental care expenses. The amount for the contribution can be up and down as per the requirements and the employee’s job earnings.
So in the HSA vs. FSA analysis, you can find a clear comparison between both accounts and plans. It will help you in the proper planning for the future as well as the present time.
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