Health Savings Accounts vs. Flexible Spending Accounts

CulverServices

There are a plethora of ways your business can utilize fringe benefits to attract and retain top talent. At CulverCareers, we advise you to look at your benefits package creatively and offer the very best to your employees. To this end, many companies use flexible spending accounts (FSA) and healthcare savings accounts (HSA) as added perks for their team members. 

The primary perk of both FSA and HSA packages has to do with tax breaks. For each option, employees defer income to be used solely for medical purposes. This deferred income is not taxed by the Internal Revenue Service (IRS). According to Healthcare.gov, the money is held “in a special account … you use to pay for certain out-of-pocket health care costs.” 

Most businesses offer FSA and HSA plans in conjunction with standard health insurance benefits. In most instances, the funds from the accounts can be used to pay for insurance copayments and deductibles. 

If you are considering offering flexible spending accounts or health savings accounts for your employees, there are a few key items you should review. 

How do Flexible Spending Accounts Work?

Flex spending accounts are a great option for people who know they will have a lot of medical expenses each year. With FSA plans, employees can stay ahead of their medical expenses with tax-free cash. This fact makes these benefits plans very attractive to employees with families as well as with pre-existing health conditions. 

FSA accounts are defined by a low-deductible, high-monthly cost ratio. Because people who choose the plans already know they will be spending a deal on medical costs, this is not a big issue. However, employees must be cautious, as the money saved in an FSA account must be spent that year, or it is lost. 

The HSA Bank website does a great job of breaking down how flexible spending accounts work. When employees enroll in an FSA, they pre-determine an estimate on medical expenses for the year. In doing so, they vow to contribute monthly income to their FSA account which is commensurate with their pre-chosen estimate. Interestingly, “employees have access to the total amount of the FSA on the first day of the plan year, even though they have not made all of their payroll contributions yet.” 

In order to ensure that the FSA account is covered prior to the employee making contributions, employers cover the expenses. These expenses are then recovered from the employee account at a later date. As can be seen, flexible spending accounts offer a great way to establish trust and respect between yourself and your employee team. 

How do Health Savings Accounts Work? 

Health savings accounts are an excellent option for team members who don’t anticipate having many medical expenses. With HSA plans, people contribute smaller amounts of tax-free income into a medical savings plan that rolls over year-after-year. Smaller contributions, coupled with the option of long-term medical savings, make HSA plans attractive to young professionals who do not anticipate many medical costs. 

HSA accounts are defined by a high-deductible, low-monthly cost ratio. They are often looked at as long-term investments in future health care, especially for people who plan on having a family down-the-road. Business savvy employees also appreciate HSA plans because the tax-free money can be invested in something lucrative. 

Many financial experts compare HSA accounts to “personal savings” accounts. The main caveat being, employees can only spend the money in their HSA account on medical expenses. Also, they must be enrolled in a “high-deductible health plan (HDHP).” In these plans, employees regularly contribute tax-free income into a savings account that can only be used for medical expenses. Similarly, the amount they can spend is commensurate with what they have saved. 

Unlike FSA programs, HSA plans are often viewed as long-term investments, as opposed to health benefits that will help alleviate present-day stress. Either way, HSA plans are an excellent perk for your employees – especially those who with a vested interest in long-term savings. 

Where can Employees use their FSA & HSA Funds? 

FSA and HSA accounts are similar concerning where employees can spend the tax-free funds. Employees must use the funds on medical expenses and can do so until they meet insurance plan deductibles. 

Applicable uses for FSA and HSA funds include:

  • Doctors visits / co-pays
  • Prescriptions
  • Dental expenses
  • Diagnostic equipment
  • Vision expenses 
  • Hospital visits 

Employees can access the funds in both FSA and HSA accounts with a debit card. When they make a purchase on a medical expense, the funds are simply deducted from the overall balance. This simple fact makes these health savings plans very convenient. 

Contact Culver for Guidance on FSA and HSA Programs 

The team at CulverCareers has years of experience working with employee benefits plans. If you are working on new programs to attract and retain employees, we are happy to discuss the FSA and HSA plans with you. 
Contact Us today to start crafting winning benefits packages.

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Written by

Ty Culver has extensive experience in the Talent Acquisition/Retention space. He has helped some of the most powerful companies in the market place enhance their employee experience and scale their teams. Ty specializes in Executive Search, Retention programs for Key People and Population Wellness. Ty has helped CulverCareers rise to the Top 1% of the industry and differentiate from the field with a holistic approach to Acquisition and Retention of People.

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