My Coverage Explained

Everything You Need to Know about Health Savings Accounts and Flexible Spending Accounts

When selecting your health insurance coverage, most people are familiar with PPOs (Preferred Provider Organizations) and HMOs (Health Maintenance Organizations), but are you aware there are other choices? Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) are additional health insurance options available to you that pay for your medical expenses using tax-favored accounts. Keep reading to see how they work!

When it comes to staying healthy and paying doctor bills, there are a lot of ways to help pay your bills and save money. Enter, HSAs and FSAs.

For example, when you go to the doctor, you either pay a copay  or, depending on the type of health insurance plan you have, you may have to pay the full amount of the visit. Normally, people pay this amount out of pocket. This isn’t a big deal if your copay is around $30. However, if you have a health plan that requires you to meet your deductible before the health plan starts paying, you may end up having to pay the entire cost of the visit upfront. This could be a wide range and could be upwards of several hundred dollars if you are seeing a specialist.

What if you had a dedicated savings account, set up specifically for paying out-of-pocket costs, and that account had pre-taxed funds——would that be of value to you? There are two types of savings accounts available just to help you do just that. These accounts set aside some of your income (this is the good part) BEFORE you pay taxes on that money. When you use these accounts, you can save hundreds of dollars throughout the year. And, at the end of the year, you have a lower reported income because that money was taken out for your health savings account (winning).

That sounds great, but just like most good things, there are some rules around the savings accounts to ensure they are used properly. We want to share some FAQs with you to help you know the difference between them, so you can know if one of these options may be right for you!

What is an HSA?
A Health Savings Account, or HSA, is a special savings account that can only be used to pay for qualified medical expenses including those not covered by health insurance. Qualified medical expenses are set by the Internal Revenue Service (IRS) and include some standard medical, dental, vision and prescription expenses. You use your HSA to pay expenses that go with having a High Deductible Health Plan (HDHP), also sometimes called a Consumer-Driven Health Plan (CDHP). You must have an HDHP to qualify for an HSA. That’s a tricky detail, but important to know.

With an HSA, you set aside money, pre-tax (woohoo!). When you visit a doctor or go to a hospital that is in your network, you can expect to pay the full cost of service from your HSA account until you reach your deductible. Once you meet your deductible, your HDHP kicks in and you can use your HSA to pay lower up-front costs. You should always check to see which doctors are in your network with tools like the Blue Cross and Blue Shield of Illinois Provider Finder® before scheduling a visit to keep your costs down. Remember, you can still choose to see a doctor out of your network, but at a higher price.

What do I get with an HSA?

  • You get something we all love when you deposit money into your account: tax savings!
  • Some employers will even contribute funds to your HSA!
  • What’s more, if you don’t use it, you DON’T lose it! If you do not use all the money in your HSA account at the end of the year, you can roll it over to the next year so it grows over time.
  • You can use the money from year-to year because it never expires.
  • You get to keep all the interest.
  • You can take your money with you even if you retire, change jobs or cities.

What is not in an HSA?
Your accumulated monies will roll over year to year; however, you risk running out of money if you have a major medical expense and you don’t have enough money in your HSA to cover all of the expenses. It is not an emergency piggy bank, if HSA monies are used for non-qualified medical expenses, there are penalties that will occur.

Now, let’s talk about Flexible Spending Accounts, or FSAs.

What is an FSA?
A Flexible Spending Account, or FSA, is similar to an HSA because it is a pre-tax savings account used to pay for qualified medical expenses. You can contribute to your FSA throughout your plan year without paying tax on it to help cover the cost of copays, coinsurance, medical tests, vision, dental and prescription expenses. Unlike an HSA which must accompany a high deductible health plan, with an FSA, you must have a Preferred Provider Network (PPO) health insurance plan to qualify.

What do I get with an FSA?

  • You still get tax savings!
  • Some employers contribute funds to your FSA!
  • You can roll over up to $500 a year.

What is not in an FSA?
If you have more than $500 in your account at the end of the year, you lose it. So in other words, it’s a use it or lose it savings account. Your employer owns the account, and you can’t take the funds with you if you change jobs or retire.

What is the same between a HSA and FSA?
Both of these are pre-tax savings accounts used to pay your medical expenses like doctor and hospital visits and prescriptions. You can contribute to them all year long and your employer may contribute as well. It is not required to have either an HSA or an FSA. You save when you use doctors that are in-network, and once you’ve hit your out-of-pocket maximum, your health plan pays covered services at 100 percent. Depending on your circumstances, you can save lots of money by having one of these savings accounts.

What are the differences between an FSA and HSA?
The HSA requires you to have an HDHP. The FSA requires a PPO health insurance plan to qualify. Your PPO or HDHP may all have their own unique set of providers that are in-network. That’s why it’s always important to check to see if your providers are in-network before scheduling appointments. You can use your HSA money year after year, and all but $500 of your FSA expires are the end of your plan year.

Here’s a helpful chart to show you the similarities and differences between HSAs and FSAs:

How do I choose between an FSA and HSA?
This decision depends on the level of coverage that’s right for you and the amount of control you want with your health plan. It also depends on your willingness to take risk. If you are not managing ongoing medical treatment and you want the ability to contribute and invest the money you save for future medical expenses, an HDHP/HSA combination may be the right path for you. If you are managing a chronic condition or ongoing medical expenses that can have extremely high costs, a PPO supplemented with an FSA might be right for you. Our Customer Advocates and your Human Resources department, if you have one, are available to you to help you decide.

Have questions about health insurance plans? Give us a shout in the comments!

Comment

SIGN IN to share your comments or REGISTER today to become a Connect member.

Blue Access for Members (BAM)

LOG IN if you are a member or REGISTER today to become a Blue Access member.