SALT LAKE CITY — Because healthcare is expensive, you have decided to save money by spending tax-free dollars by using one of two accounts: health savings or flexible spending. But which one is right for you? An expert weighs in on the two options.
According to Healthcare.gov, a Health Savings Account (HSA) is a type of savings account that lets you set aside money on a pre-tax basis to pay for qualified medical expenses. By using untaxed dollars in a HSA to pay for deductibles, co-payments, co-insurance and some other expenses, you may be able to lower your overall healthcare costs. But HSA funds generally may not be used to pay premiums.
If you have a health plan through a job, you can use a Flexible Spending Account (FSA) to pay for healthcare costs, such as deductibles, copayments, coinsurance and some medications.
With an FSA, you submit a claim to the FSA (through your employer) with proof of the medical expense and a statement that it hasn’t been covered by your plan. Then, you’ll get reimbursed for your costs.
An FSA can also lower your taxes, according to Healthcare.gov.
To learn more about FSAs, contact your employer for details about your company’s FSA, including how to sign up. Get details from the IRS in this publication.
Let’s talk with an expert
Heidi Castaneda, assistant vice president of Individual and Small Employer Products at SelectHealth, joins Dave Noriega and guest co-host Maura Carabello to discuss what you should know about HSAs and FSAs.
“We’ve talked to you in the past, Heidi, about health savings accounts,” Dave said. “Can you help differentiate — like when do we use Health Savings Accounts and how do they differ from Flex Spending Accounts?”
“In general, when you talk about an HSA or an HSA plan, in order to be eligible, you have to pair it with the correct health plan, with a qualified high-deductible health plan,” Castaneda said.
“So in theory, the idea is that you purchase generally a lower cost health plan with higher deductibles and out-of-pocket [costs],” Castaneda said. “Then you get the opportunity to put tax-free money away into an HSA account to help fund some of those upfront costs that you might be contending with when you have a high-deductible health plan.”
Contribution caps climb for next year
“Part of the reason why we’re talking about health savings accounts is because the IRS just announced that they’re raising the amount that you can put into your health savings account,” Dave said.
“Every year the deductibles, the out-of-pocket and the contribution limits usually adjust slightly, but we did just see a pretty big jump for 2024,” Castaneda said. “So for example, if it’s just you, you can contribute up to $4,150 into your account every year. If you’re a family, it goes to $8,300. And there are even provisions for people who are over 55 [who] can contribute a little bit more than that.”
Differences between HSA and FSA
Dave said he has had a FSA for a long time. In one especially healthy year, he had $1,500 set aside in his FSA.
“It is one of those situations where if you don’t spend the money, you just flat out lose it. I don’t understand the concept, but thems the rules. And I remember buying Gucci sunglasses, like prescription sunglasses, just to spend the money because that was covered. I must have had a $700 pair of glasses that I did not need.”
“One of the big differences between an FSA and HSA is that those HSA dollars are yours,” Castaneda said. “And we just talked about, you spend it or you lose it at the end of the year. In an HSA, that’s not the case actually.”
Spend it or lose it
If you have an FSA, the government advises that you plan ahead:
At the end of the year or grace period, you lose any money left over in your FSA. Don’t put more money in your FSA than you think you’ll spend within a year on things like co-payments, co-insurance, drugs and other allowed healthcare costs.
But your employer may offer one of two options:
1. It can provide a “grace period” of up to 2½ extra months to use the money in your FSA.
2. It can allow you to carry over up to $610 per year to use in the next year.
Dave & Dujanovic can be heard weekdays from 9 a.m. to noon. on KSL NewsRadio. Users can find the show on the KSL NewsRadio website and app, as well as Apple Podcasts and Google Play.