What is the alphabet soup of health spending accounts?  There are FSA’s, HRA’s, and HSA’s.  What are they?  Which one do you have and which one do you need? Today we are going to simplify these accounts to better understand each one and which one you might best use.

Flexible Spending Agreement (FSA)

Flexible spending agreements typically fall into four categories;

• Medical Expenses
• Dependent Care Expenses
• Adoption Expenses
• Health Premium Expenses (typically offered by employers who do not provide access to a group health plan)

Today we will focus on the medical flexible spending accounts.  Below are the key items to know about medical flexible spending agreement accounts.

Key Points of FSA’s

1. There are two types of Medical FSA’s: be sure to read your benefit agreement to understand which type of account your employer offers.
   1. General Purpose – you may use these funds for all qualified medical expenses
   2. Limited Purpose – you may only use these funds for dental or vision expenses
2. These health spending accounts are owned by your employer.  This means that the money in these accounts is dependent on your employment status.  In other words, if you leave the job, you also leave the money.
3. FSA accounts are typically subject to a use it or lose it clause.  Your employer might allow you to roll-over up to $500 to the new year or they might allow you a two and a half month grace period to spend the prior year balance.  Your employer has the option of imposing “use it or lose it” clauses. As a result, anticipating your annual expenses is very important.
4. There are maximum deposit requirements on FSA’s.  In 2019 the IRS maximum deposit is $2700 per year.  The maximum includes ALL deposits, regardless of where they come from.

Health Reimbursement Accounts (HRA)   

Health reimbursement accounts are health spending accounts that are funded by your employer for qualified medical expenses. If an HRA is an offered to you, here are the important things to know:

Key Points of HRA’s

1. Only your employer can deposit funds into your HRA.  This is not an account where you can deposit pre-tax earnings.
2. Like the FSA, this account is owned by your employer and is subject to your employment status.  If you leave the job, you lose the money in the account.
3. This account can be used in conjunction with an FSA if you have one.  You must use the FSA funds before your HRA funds are available.
4. These accounts can be used with any health plan. 
5. Maximum contributions are determined by the employer as these are the only allowable deposits.

Health Savings Accounts (HSA)

Health Savings Accounts are also accounts that allow you to use pre-tax dollars to cover qualified medical expenses.  Again, you can have a set amount deposited from your earning each pay period.  There are three key differences between FSA’s and HSA’s:

Key Points of HSA’s

1. You own the account regardless of your employment status.   There is no use it or lose it clause on these accounts and they are not subject to any roll-over or grace period for usage. 
2. You must be enrolled in a qualified high deductible health plan (HDHP).  Qualified high deductible health plans health plans that have a minimum deductible of $1350 for singles and $7000 for families.  HDHP’s have a maximum out of pocket of $6750 for singles and $13,500 for families.  If you are enrolled in a HDHP, you are eligible to open an HSA.  The HDHP can be an individually purchased plan and is not subject to an employer group health plan.  As such, you can check some of the best HSA administrators here.
3. Maximum contributions to HSA’s in 2019 are $3500 for individuals and $7000 for families. There is an exception to these deposit maximums.  You can contribute $1000 more per year if you are over age 55. This is called the “catch up contribution”.

In Conclusion

Flexible spending agreements, health reimbursement accounts, and health savings accounts are all options to using pre-tax dollars for medical expenses. Use this information to make better, more informed decisions regarding your healthcare finances. If you need more information or have specific questions regarding your health care spending account options, contact me directly at [email protected]. I am happy to assist.

I hope that you have found this post helpful.  To learn about deductibles, co-pays, and co-insurance, please take a look at our recent post What Are Surprise Medical Bills & How to Avoid Them.