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Health savings accounts (HSAs) and flexible spending accounts (FSAs) help pay medical expenses while offering tax-savings benefits. Here’s one way they can help you make the most of your health care dollars:
When you go to the doctor, you may have to cover a copay or pay the full amount of the visit upfront (depending on your health insurance plan). Either way, most people pay this amount out of pocket. If your copay is around $30, the cost may not be a big deal. But if you have a health plan that requires you to meet a deductible before it starts paying, the upfront, out-of-pocket cost could be pretty steep – maybe several hundred dollars or more if you’re seeing a specialist.
Wouldn’t it be nice to have a savings account to cover these out-of-pocket costs? What if the savings account was funded with pre-taxed dollars? Even better, right? An account like that could be pretty helpful.
HSAs and FSAs do exactly that. They set aside some of your income before you pay taxes. When you use these accounts, you can save hundreds of dollars throughout the year. At the end of the year, you also have a lower reported income due to the money placed in your health savings account.
There are some rules to ensure these accounts are used properly. Answers to some frequently asked questions will help you understand more.
Because it is a health savings account, an HSA can only be used to pay for qualified medical expenses – including those not covered by health insurance. Qualified medical expenses are defined by the Internal Revenue Service. They include many standard medical, dental, vision and prescription expenses. You can use your HSA to pay expenses associated with a high deductible health plan (HDHP).
You must have an HDHP to qualify for an HSA.
With an HSA, you set aside pre-tax money to fund the account. When you visit a doctor or go to a hospital that is in your network, you can pay the full cost of service from your HSA account until you reach your deductible. Once you meet your deductible, your HDHP kicks in and you can use your HSA to pay lower up-front costs. Always check to see which doctors are in your network. Use the Blue Cross and Blue Shield of Montana Provider Finder® before scheduling a visit to keep your costs down. You can still choose to see a doctor out of your network, but will pay a higher price.
When you deposit money into your account, you get tax savings. Some employers even contribute funds to your HSA. If you don’t use all the money in your account by the end of the year, you can roll it over. Your HSA money grows from year-to-year and never expires. Plus, you get to keep all the interest. You can even take your money with you if you retire, change jobs or cities.
While your money rolls over year to year, it could run out if you have a major medical expense and don’t have enough money in your HSA to cover it. Also, an HSA isn’t an emergency piggy bank. There are penalties if you use it to cover non-qualified medical expenses.
Similar to an HSA, a flexible spending account is also a savings account. An FSA is funded with pre-tax dollars you can use to pay for qualified medical expenses. You can contribute funds to your FSA throughout your plan year without paying tax on that money. The account can help cover copays, coinsurance, medical tests, vision, dental and prescription expenses. Unlike an HSA that is tied to a high deductible health plan, an FSA requires that you have a preferred provider network (PPO) health insurance plan.
You still get tax savings! Some employers contribute funds to your FSA, and you can roll over up to $500 a year.
If you have more than $500 in your account at the end of the year, you lose it. Your employer owns the account, and you can’t take the funds with you if you change jobs or retire.
Both are pre-tax savings accounts used to pay for your doctor, hospital visits, prescriptions and other medical expenses. You can contribute to them all year long, and your employer may contribute as well. You don’t have to open an HSA or FSA. They are just two options designed to help you save money and make the most of your health care dollars.
Remember, you save when you use doctors who are in-network. Once you meet your out-of-pocket maximum, your health plan pays covered services at 100 percent. Depending on your needs, you can save lots of money by having one of these savings accounts.
An HSA can only be used with an HDHP. An FSA requires a PPO health insurance plan to qualify. Your HDHP or PPO may have their own set of in-network providers. It’s always important to check and see if your providers are in-network before scheduling appointments. You can use your HSA money year after year. All but $500 of your FSA expires at the end of your plan year.
Your choice depends on the level of coverage that’s right for you. If you are not managing ongoing medical treatment and you want the ability to contribute and invest the money you save for future medical expenses, an HDHP/HSA combination may be right for you. If you are managing a chronic condition and ongoing medical expenses, a PPO and FSA might be a good choice. Our customer advocates and your human resources department are available to help you decide.
Originally published 6/15/2016; Revised 2021
Blue Cross and Blue Shield of Montana, a Division of Health Care Service Corporation, a Mutual Legal Reserve Company, an Independent Licensee of the Blue Cross and Blue Shield Association
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