Not long after I figured out that I would pass the HSA testing period, I received an interesting and oblique note from my HR department. Paraphrasing here, it said that in the new year they would be evaluating the current health insurance options and looking at improved plans.
This elicited a hurrah from the company that echoed far beyond my own (virtual) desk. Everyone I know is underwhelmed with the options offered, which are pretty much catastrophic coverage only.
But just like how they started to offer a 401(k) earlier this year, it looks like the next frontier of improving employee benefits is better health plans.
A better plan would, almost surely not be an HDHP (High Deductible Health Plan), and therefore, I wouldn’t be able to contribute to an HSA (Health Savings Account).
I might be able to contribute to an FSA (Flexible Spending Account), if they offered one.
FSA or HSA: Which one would you choose, if you had the option?
Defining terms here:
An FSA is a tax-advantaged savings account you can use to pay for health care expenses, available to anyone if their employer offers it.
An HSA is a tax-advantaged savings account you can use to pay for medical expenses, available to anyone enrolled in a High-Deductible Health Plan.
Considerations
With that in mind, here are some considerations:
- Self-direction: Your employer has to offer an FSA for you to have one. An HSA can be directed through an employer, but anyone can set one up. Advantage: HSA
- Maximum contribution: In 2018, it’s $2,650 for an FSA, but $3,450 (self) and $6,900 (family) for an HSA. So more money is available for an HSA. Advantage: HSA
- Flexibility of source funds: An FSA must be taken out of your paycheck. An HSA can be taken out of your paycheck, but you can also use after-tax money (and then get the tax break at tax time). Advantage: HSA
- Immediate use of funds: You pre-plan contributions for an FSA over the course of a year. Because this amount is known in advance, you can actually use the full amount, before you’ve contributed it, in effect spending money you haven’t earned yet. Advantage: FSA
- Funds expiration: Any money you put in to an FSA will expire at the end of the year, which can cause you to do very silly things. HSA funds never expire. You can use them in retirement if you want. Advantage: HSA
- Health care plan flexibility: An FSA can theoretically be offered with any plan. An HSA needs to be coupled with a HDHP. Serious advantage: FSA
- Cashing out: Not possible with an FSA, but possible (with penalties) with an HSA. Advantage: HSA, though why would you want to do this?
There are other pros and cons to the FSA/HSA, but to me these are the big ones.
What would I choose? It’s a total tossup. There isn’t a clear winner here. The specifics of the health insurance, the medical needs of the person, and other job-related factors would have to be taken into account.
I might have to make this decision soon though. If I do, I’ll let you know what I choose.
But enough about me. Have you had to choose between an HSA and an FSA? What did you choose?
