All about HSAs and FSAs
The names are confusing, but we're here to break them down. HSAs and FSAs are two types of accounts that can help you save for—and pay for—your health care expenses.
What is an HSA?
HSA stands for health savings account. It's a personal bank account just for health care expenses. The money in your HSA rolls over from year to year (it's not a "use it or lose it" account). Your HSA also goes with you even when you change employers.
To open an HSA, you must have a type of medical insurance called a high-deductible health plan (HDHP). The Internal Revenue Service (IRS) defines a high-deductible health plan as any plan with a deductible of at least:
- $1,400 for an individual
$2,800 for a family
With an HDHP, you usually pay less in premiums, and can use your HSA money to pay for medical expenses that apply toward your deductible and coinsurance.
Before you're 65, you can only use HSA dollars to pay for qualified medical expenses, as defined by the IRS. You also can save your HSA funds to cover health care costs when you're retired. And after you turn 65, the money is yours to use, penalty-free, for any purposes (learn more below).
What is an FSA?
FSA stands for flexible spending account. It's similar to an HSA in that it's also an account that you can contribute to tax-free, so that you can save for health care costs. However, there are a few key differences.
- You can get an FSA with any kind of health plan, not just an HDHP.
- The account is usually set up and owned by your employer. This means that it doesn't come with you when you change jobs.
- FSAs have a lower annual contribution limit (learn more below).
An FSA is a "use it or lose it" account. This means that if you have any money left in your FSA at the end of the year, it's forfeited to your employer.
Read on for some frequently asked questions about HSAs and FSAs.
Regence offers HSAs with high-deductible health plans (HDHPs) in all the states it covers.
In Oregon, Idaho and Utah, you can purchase HDHPs with HSAs directly from Regence, off the health care exchange, at regence.com.
In the state of Washington, both HSA and HDHP plans are available at regence.com directly from Regence. In Washington's health care exchange, only HDHPs are available. These plans may or may not qualify for an HSA depending on whether or not you use the advanced premium tax credit (APTC) when you file for income taxes.
If your employer offers Regence plans, their selection may include HSA or HDHP plans. Check with your human resources department or management team.
To get the most value out of an HSA, you have to:
- Be aware of your health care costs so you know how much to deposit into your HSA
- Actively manage your care
Common ways people use HSAs are to:
- Plan and save for health care costs after they retire to avoid using 401(k) or other retirement funds
- Save for unexpected changes in health care costs at any time in their lives
- Cover premiums if they've lost their job (COBRA) or have retired (along with some other specific situations)
- Have more freedom in their health care spending on equipment, treatments and providers
- Pay for the qualified medical expenses of a spouse or child, even one not covered on the HDHP or HSA plan
You can open an HSA if:
- You have a high-deductible health insurance plan (HDHP) that is HSA-qualified by federal guidelines
- Your HDHP is your only health plan (aside from a separate dental or vision plan)
- You can't be claimed as a dependent on another person's tax return
- You are not eligible for or enrolled in Medicare
- You are not selecting a tax credit that makes your deductible less than the IRS allows for an HSA-qualified plan
Using an HSA with your high-deductible health plan may save you money through reduced taxes and lower premiums. Also, when you tell providers you are paying out of your own pocket for care instead of filing an insurance claim, you can often arrange a cash discount.
Save money each year on taxes
You can deposit money into your HSA tax-free and take it out for qualified medical expenses without paying taxes.
Plus, you can invest your HSA balance just like your individual retirement account (IRA). Your interest or investment income will also be tax-free, though you can only spend it on qualified medical expenses.
Save money each month on premiums
High-deductible health plans that let you use an HSA cost less in monthly premiums. That's because you are sharing more of the cost, such as copays and deductibles.
While you can't use your HSA funds to pay for your monthly premiums, you can use the funds to pay for a number of qualified medical expenses that are not covered by your HDHP, such as eye exams, eyeglasses and contact lenses, dental cleanings, fillings and even qualified medical expenses for a spouse or child.
If you buy a plan that is HSA-qualified and pick HealthEquity (our preferred partner) when you apply, an HSA bank account is automatically created for you. HealthEquity will send you a welcome kit to help you access your account. Or, you can choose to work with your own bank—it's up to you.
If you bought your plan on the exchange, you can set up your HSA account with HealthEquity by signing in, going to My account and then the HSA options page. Select the HealthEquity option and choose to share your claims with HealthEquity if you would like to also see that information in your HealthEquity account.
Managing your HSA through HealthEquity
Through our tie to HealthEquity, you can have your claims information automatically sent to HealthEquity to let you manage your account 24/7. You can also use online tools such as:
- Document storage (for receipts)
- Bill pay to providers
- Apps to manage your account from your smartphone
If you use HealthEquity, be sure to check your preferences by signing in to regence.com and going to My account.
Learn more about HealthEquity online or call 1 (866) 346-5800.
Managing your HSA through a bank of your choice
You can also set up an HSA with our referral partner, HSA Bank, for a discounted rate. And you always have the option to open an HSA with any IRS-qualified bank that you choose.
There's a maximum amount that the IRS allows you (and your employer) to contribute to any HSA in a calendar year.
For 2019, you can contribute up to:
- $3,500 for an individual HSA
- $7,000 for a family HSA
For 2020, you can contribute up to:
- $3,350 for an individual HSA
- $7,100 for a family HSA
Also, if the primary member of the high-deductible health plan is age 55 or older, you may deposit up to an additional $1,000.
Each year, you decide how much to contribute to your HSA. Sometimes your employer may also kick in a contribution. You can put money into your HSA as easy as you make deposits into a bank account. For members with a HealthEquity HSA, you deposit money online or send checks to HealthEquity.
If you get your insurance through your employer, you can have payments deducted from your paycheck and deposited to your HSA account automatically.
These deposits are made on a pre-tax basis. That means they may not be counted as part of your gross earnings. Basically, you have less income, so you pay lower taxes. You also don't pay taxes on the money you take out of your HSA to pay for medical expenses.
Your HSA comes with a debit card, just like other bank accounts, or you can request checks. Use the card or the checks to pay for qualified medical expenses at the time of purchase. You can also reimburse yourself—that is, pay out of pocket, then pay yourself from your HSA. As long as you spend your HSA funds only on qualified medical expenses, you won't pay income tax on that money.
While you can't open an HSA in a child's name, you can use money from your HSA to pay for medical expenses if you or your spouse claims that child as a dependent on a tax return.
Spend only on qualified medical expenses
The IRS decides which expenses are considered HSA-qualified medical expenses, but the list includes:
- Office visit copayments
- Your deductible
- Prescription drugs
- Lab tests
- Many treatments that may not be covered by your insurance, such as buying contact lenses, glasses, dental care and even things your health plan may not cover, like LASIK and orthodontics
In general, your premiums, nonprescription medicine and some other expenses do not count as HSA-qualified medical expenses.
Note: If you spend HSA money on nonqualified medical expenses, you'll have to pay income tax on that amount. Plus, if you're under 65, you also pay a penalty to the IRS. So, it's important to check the qualified medical expense list when making decisions about how to use your HSA money. You can see a list in IRS Publication 502.
Money deposited into the HSA is yours and remains in your account until you spend it. Use your HSA to save money while you're healthy and don't need medical care. Your money will grow tax-free and be there to help you pay for future medical expenses.
The funds will become available to you for nonmedical expenses in retirement (after age 65) without having to pay a penalty, but you will have to pay income taxes on any nonqualified medical expenses.
While you need to be enrolled in a qualified high-deductible health plan in order to start or contribute to an HSA, you can use funds from your HSA for qualified medical expenses whenever you want—even if you're no longer enrolled in a high-deductible health plan.
While you can't open or contribute to an HSA if you're eligible for Medicare, you can still use funds from your HSA when you transition to Medicare.
At the end of the year, you'll receive a report in the mail from the bank that holds your HSA. Use this report to prepare your tax returns.
FSAs and HSAs both let people save pre-tax money to pay for qualified medical expenses. The biggest differences between the two are that:
- An FSA is established through an employer.
- An FSA can be used with health insurance, but you don't have to have health coverage to have and use an FSA.
- An FSA is limited to $2,700 per year per employer. Spouses also can put up to $2,700 in an FSA with their employers.
Other differences are:
- An FSA usually has money added into it through pre-tax deductions from your paycheck. However, your employer can also contribute to your FSA.
- Money from an FSA can pay deductibles, copays and coinsurance, as well as qualified medical expenses that are not covered by health insurance. It can cover qualified care of your dependents and spouse. It can also cover over-the-counter medications if a doctor prescribes them.
- You lose any money in your FSA that you do not use by the end of the year. Your employer can either allow for a grace period of up to two and a half extra months to use the money in your FSA or it can let you carry over up to $500 per year to use in the following year (or it can offer neither option).
- You put money into an FSA through a deduction from each of your paychecks during the year. However, you can use the full annual contribution immediately at the beginning of the year (or after you make your first contribution). If you use the full amount and then quit, are fired or are laid off before to the end of the year, you do not have to pay the FSA money back to your employer.