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HSA, FSA, WTF?

If there’s anything this COVID pandemic has reminded us of, it’s that your health is important

And if you’ve been delaying a visit to your doctor because you’re worried you’ll have to deal with pesky out-of-pocket costs, look no further! 

There might be a solution to help you save on medical expenses. Oh, and did we mention it’s tax-free? ;)

👀 4min read

HSA vs FSA

📸: @aweng

In this post, we cover everything you need to know about Health Savings Accounts (HSAs), Flexible Spending Accounts (FSAs), including:

  • how it works, 
  • how much dough you can add to each, and 
  • why-the-fudge you might want one (or both) 

...Other than the money-saving perks, obviously!

PS: please note this article was originally published on October 11th 2021 and updated on November 8th 2022 to reflect 2022/2023 numbers. If you’re looking for information specific to open enrollment and how to apply, scroll to the end of this post. 

PPS: did you know you can maximize HSA and FSA accounts by investing? Get more tips + learn how with a monthly Penny membership. Learn more here.

What is an HSA?

AKA: Health Savings Account

An HSA is an arrangement, set up through your employer, that lets you pay for many out-of-pocket medical expenses with tax-free dollars.

Both you and your employer can contribute to this account for eligible medical expenses. And you don't have to pay taxes on the money you add in. (woohoo!)

How does it work?

When you sign up for an insurance provider during open enrollment, you select the HSA option, and decide how much you want to contribute to it. 

(What is open enrollment, you ask? More on that below.)

Similar to how your insurance premiums are withdrawn from your paycheck, HSA dollars also get taken out of your paycheck, pre-tax. 

Your HSA cash goes straight from your company, into the account -- excluding them from federal, state, medicare and social security taxes and fees. 

Once you’re set up, you get an HSA debit card in the mail. It literally looks like a credit card, and you can use it whenever you pay for eligible out-of-pocket health care expenses.

If you forget your HSA debit card at home, just pay with your regular debit or credit card, and submit your receipt (plus other relevant info, if required) through their online portal. 

The online portal also allows you to track how much you've spent, and the balance on your “allowance”, so it’s pretty nifty.

How much can you put in an HSA?

HSAs are limited to a specific contribution amount per year. 

  • Individuals (aka self-only coverage) are limited to $3,650 in 2022 and $3,850 in 2023.
  • Family coverage is limited to $7,300 in 2022, and $7,750 in 2023. 

You can carry over any un-spent money (usually up to $500) to the next year -- so you don't lose it. And you can invest the money in this account if your employer offers the ability to. Win-win!

Should you get an HSA?

Yes, but ONLY IF:

  • You spend a lot of money on medical expenses (like fertility treatments, dental work, contact lenses, X-rays, special medication, etc.)

OR

  • Your company gives you free HSA money. Lots of big companies put $500 into an HSA account for their staff per year, which is pretty sweet. Take the money. Obviously.  

If you don’t fall within either of these 2 categories, an HSA may not be worth it. 

Your money is somewhat locked up in this account, since it can't be used for other things, and it might just rot away in there until you have an eligible medical expense come up. 

Keep in mind, sometimes other health-related things are covered by HSA, like:

  • acupuncture treatment, 
  • yoga classes, and
  • a new FitBit.

But you definitely gotta check with your insurance first, since they may require you to present a special doctor's note to get reimbursed for these. 

Can you use HSA to pay for your insurance premium or deductible?

Premium: No. This is the “fee” you pay for your health insurance, so it’s not included. 

Deductible: Yes! And this is why, if you have a high-deductible insurance account, an HSA account is a great way to save. 

For example: If your deductible is $1,000, then it might make sense to contribute $1,000 to an HSA. You already know you’ll be billed that much before your insurance pays for a doctor's visit; this way you can get the tax benefits and cover it with tax-free dollars.

What is an FSA?

AKA: Flexible Spending Account

This is ALSO an arrangement through your employer that lets you pay for many out-of-pocket medical expenses with tax-free dollars. 

How does it work?

Literally the same as an HSA! Same concept, you gotta spend the money on qualified medical expenses, otherwise you won’t get reimbursed. 

How much can you put in an FSA?

FSAs are limited to $2,750 per year. In most cases, you HAVE to spend all the money within the year.  And you CANNOT invest the money in this account. 

Should you get an FSA?

Maybe! An FSA makes sense for you if:

  • You are not eligible for an HSA (ie. you didn't pick an insurance plan that offers one)

AND/OR 

  • You spend a lot of money on medical expenses (including if you have dependents: there’s a specific FSA type for that too!)

HSA vs. FSA: Do you need both?

Our view is simple. 

...If you are someone who doesn't have underlying health conditions, and you go to the doctor only 1x a year, dentist 2x a year, and that's it -- you don't need an HSA or FSA! 

...If you are someone who does have high medical expenses -- maybe you’re going through IVF, or you have diabetes, or other health conditions -- then, an HSA and FSA are a great way to get more bang for your buck!!! 

Only exception to this rule: If your company is going to put in $500 or more into an HSA for you, FOR FREE -- DO IT. Free is Free. And “free” money is always a yes. ;)

One a last note:

If you don’t have health care insurance at all, you won’t be able to get an HSA or FSA. Your first step would be to register for a health plan instead.

And if you do want an HSA or FSA… Know that open enrollment only happens once a year, and is only open for about a month around October/November.

What is open enrollment? A window of time when you can sign up for health coverage (or make changes to your existing plan).

It’s great because you can “openly” enroll without the need for what they call a “qualifying life event” – such as moving jobs to an employer with a different insurance provider – so you have more choices and flexibility when choosing the right health plan for you. 

Like we just said though: Open enrollment is only open for a few weeks during fall/winter. 

Make sure you don’t miss this window!

You can find the specific dates at https://www.healthcare.gov/ 

Happy saving!

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