Health Insurance 101: HSA vs. FSA

One less thing you need to be confused about.

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As you’re setting up your health insurance, you’re seeing options for an HSA and FSA. You might be thinking, Great, another thing I need to look up. However, it may be worth it to learn what these two health insurance features are. Both options may be helpful in dealing with healthcare expenses.

HSA is short for Health Savings Account, and FSA stands for Flexible Spending Account. Both of these are accounts where you set aside money for specific types of medical expenses. Similar to how a regular savings account can help you pay for surprise expenses, an HSA or FSA can help you pay for surprise health expenses.

Examples of ways to use your HSA and FSA money include:

  • New lenses or frames
  • Medications
  • Breastfeeding pumps
  • Supplies for diabetes like blood sugar monitors or test strips
  • Dental treatments like fillings or root canals
  • Emergency costs like ambulances or ER visits
  • Copays (the cost you pay at a doctor visit)

Both HSAs and FSAs use pre-tax money. This means it uses money from your salary before taxes are taken out. This can potentially help you save some money throughout the year.

Difference Between FSA and HSA

There are pros and cons of each type of account. One big pro for an HSA is that employers sometimes contribute to your HSA funds. In some cases, they might even match what you put into your HSA, which can be a big help for some people. On the other hand, FSAs are funded only by you. For both, the money that you contribute comes out of your salary (similar to the rest of your health care).

Plus, a big perk of HSAs is that you’ll never lose the money you don’t spend. Any unused money will roll over to the next year, and you can even take HSA funds with you if you change jobs. These plans are often less expensive than traditional insurance; sometimes, you can use unused funds as investments depending on the plan. For FSAs, any unused funds do not roll over to the next year, so the key is to “use it or lose it” before the end of the policy year.

Perks of a Savings Account for Health Care

Whether you have one option or both, you’ll benefit from having pre-tax money set aside for medical expenses. The result is that, depending on the total costs, out-of-pocket healthcare costs (including prescription medicines and copays) might be one less thing on your plate.

Even if you tend to have low healthcare costs, you never know when an emergency may happen. Imagine that you’re out with your friends, you don’t see where you’re stepping, and you trip and hit your head. This could result in a trip to the emergency room, which means you’ll have to pay the cost of your visit.

Bills for emergency care can range from a $50 copay to a few hundred or even thousands, depending on what kind of insurance you have. If you have a HSA, FSA, or both, you’ll likely pay less than the original amount, since you should already have some money stashed away. Just be aware that you can also quickly use up your “savings” in these accounts and may or may not have any insurance coverage after that point, depending on your plan.

If you have questions about an HSA or FSA, talk to your human resources department or insurance representative. Chances are, they can provide some valuable insight about how these savings accounts could help you. Your representative can get into the nitty gritty, so you can be as informed as possible.