Have you wondered what an HSA or FSA account is within the medical insurance industry?

With the continued rising cost of insurance and health care in the United States, two programs seem to continue to gain interest: the Health Savings Account (HSA) and a limited Flexible Spending Arrangement (FSA).

The HSA, which was established in 2003 as a replacement for a medical savings account, is meant to offer individuals who have a qualifying high-deductible health plan, an account that they can add money to (tax-free) and then use later when needed for medical expenses. The current annual contribution limit for an individual is $3400 and for a family is $6750. Employers can also assist an employee by contributing to this plan, but the total contribution limit remains the same.

A limited FSA is geared towards recurring medical expenses and has a finite amount that can remain in the account from year-to-year. Members can choose to contribute as much as $2,600 per year and carryover funding up to $500 from the previous plan year.

Participants who do not re-enroll in either a Healthcare or Limited FSA in the new plan year will have their funds automatically carried over to a qualifying FSA carryover account for the next plan year.

As a snapshot:

Health Savings Accounts (HSAs)

  • The maximum contribution is $3400 single/$6750 family with $1000 catch up (55 or older)
  • It is paired with a high deductible health plan
  • It is designed to be an IRA for medical expenses

Flexible Spending Arrangement (FSAs)

  • Allows employee to use annual amount immediately for medical expenses
  • Must use it or lose it (can have $500 carryover)
  • Is intended for recurring annual medical expenses

One thing to consider is that the IRS does not permit an individual to have an HSA and an FSA simultaneously as both are tax-free.

For more information, visit the IRS (Pub. 969).

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