Nowadays, health insurance and the medical care you receive are expensive. There are some products available to help you with those expenses, however. This is great for people who need to make sure that they are covered for their medical needs. It is lucky that we have access to these services as well as emergency care for those times when we need to be seen quickly. If you are unsure of where your centers and clinics are near you, you may want to look into ‘urgent care near me‘ online, to find one in your location. But that is a discussion for another time. Right now we need to discuss how to deal with your medical outgoings in the best way possible.
Enter in the HSA and the FSA. These two products are making it easier for consumers to save for and pay for medical care.
But how does each of them work? Which one is better?
What’s an HSA?
An HSA is a Health Savings Account. These types of accounts are available to people who have High-Deductible Health Plans (HDHP).
An HDHP is defined as a health insurance plan with a deductible of $1,350 for individuals and $2,700 for families, and an out-of-pocket maximum of $6,650 and $13,300, respectively.
An HSA is sometimes offered by the insurance company that provides the health insurance, but can often be applied for at many financial institutions.
An HSA has several key characteristics.
- Contributions are made pre-tax or tax-deductible
- Assets grow tax-free
- Funds used on qualified medical expenses aren’t taxed upon withdrawal/use
- The maximum contribution is $3,450 for individuals and $6,900 for families
- Contribution max increases by $1,000 at age 55 or older
- Can no longer contribute once 65 and on Medicare
- Can invest contributions in mutual funds, stocks, and other investment products
- Unused funds can be carried over year-after-year
Qualified medical expenses include the following.
- Medical services
- Emergency medical services
- Medical equipment
You can find a complete list of eligible expenses here.
What’s an FSA?
An FSA is a Flexible Spending Account. Only employees of eligible employers qualify for an FSA.
There are several characteristics of an FSA.
- Use it you lose it – Unused funds do not carry over from one year to the next
- Contributions are made pre-tax via payroll deduction
- Contribution maximum is $2,650. Your spouse can contribute an additional $2,650 too
- Can be used on qualified expenses
- Medical services
- Medical equipment
- Prescription medication
- Can’t be used on premiums
- See the full list of qualified expenses here.
- You may have two extra options available to you depending on your employer
- You have an extra 2 ½ months to use up funds from the previous year
- You can carry over $500 from the previous year
Which is right for you?
It very much depends on what is available to you. If you don’t have a High deductible health plan, then you are ineligible for an HSA. If your employer doesn’t offer an FSA, I’m sorry, that’s not available to you either.
If you have the option to pick between the two, most often I would lean towards the HSA and there are a few reasons why.
- You are able to contribute more, which gives you more money to use on qualified expenses and could effectively lower your tax liability.
- You can carry over unused contributions year-after-year.
- This can be used as a retirement savings vehicle. Decades of contributions and compounding returns could give you a sizeable amount to use on medical expenses in retirement
You should not use an FSA if you are in good health. An FSA is more appropriate for someone with recurring and somewhat predictable medical expenses. If you are healthy, the odds of you contributing to an FSA and not using the funds, are pretty high.
Health insurance and medical care are expensive. Having an FSA or an HSA available to lessen the blow of those expenses is HUGE.
It is very important to know which one you can use, and which one would be the most beneficial to you.
Use this information to carefully select and effectively use what’s available to you.
To learn more about saving for medical expenses and for our disclosures go to www.crgfinancialservices.com.
My name is Jacob Sensiba and I am a Financial Advisor. My areas of expertise include, but are not limited to, retirement planning, budgets, and wealth management. Please feel free to contact me at: firstname.lastname@example.org