The Importance of HSAs and FSAs As Deductibles Climb

Flexible Savings Accounts (FSAs) and Health Savings Accounts (HSAs) are both great vehicles to reduce your tax liability if you are enrolled in a High-Deductible Health Plan (HDHP).

The FSA: Employers establish FSAs so their employees can deposit money to cover the cost of visit copays, prescription copays, and other uncovered medical expenses. As an employee, you may take a tax deduction, depending on federal and state rules, equal to the amount spent on allowable medical expenses, which includes copays and some other uncovered medical expenses. Your employer or its FSA administrator will reimburse you for out-of-pocket medical or dental expenses based on the paperwork you submit.

The HSA: If you have a high-deductible Affordable Care Act or other high-deductible plan and your employer does not offer an FSA, the HSA may be right for you. The HSA works like the employee-sponsored FSA, but you must establish your plan through a bank or credit union that offers HSAs. Any amount you deposit is tax deductible up to certain limits.

Individuals and families are limited in the amounts they can contribute to an HSA. In 2018, the limit was $3,450 for individuals. For families in an HDHP family plan, the 2018 limit was $6,900. Contribution limits are increasing slightly in 2019. For an individual, the 2019 limit is $3,500 and the family plan’s new limit is $7,000. Maximum out-of-pocket expenses in 2018 were $6,650 for an individual plan and $13,300 for a family plan. Maximum out-of-pocket expenses allowable in 2019 will increase to $6,750 for an individual plan and $13,500 for a family plan.

With today’s hefty out-of-pocket costs, an HSA or FSA plan makes sense. However, keep in mind that the rules of many plans require you to use all the money you deposit or you will have to forfeit it. Although some plans provide a short year-end grace period, estimating your projected out-of-pocket medical expenses before funding your plan for the year can help you avoid forfeiting any of your deposit. Your health insurance agent can provide additional information or resources about these accounts.