Highlights
- Competitive healthcare benefits are essential for attracting and retaining top talent.
- FSAs and HSAs help employees save money on out-of-pocket medical expenses that their health insurance won’t cover.
- At Access Point, we help you build affordable and comprehensive benefits plans for your employees and offer expert administration services. Learn how we can help your business.
Healthcare benefits are improving as employers seek to attract and retain the best talent in a competitive job market. Savvy employers are offering more options to keep them ahead of the curve, such as Flex Spending Accounts (FSA) and Health Savings Accounts (HSA). But do you really know the difference between an FSA and an HSA?
By offering these benefits, employers can help their workforce save money on out-of-pocket costs associated with their health. In recent years, as healthcare costs continue to rise, the use of these accounts has been gaining popularity.
Here’s what you need to know before deciding on the right benefits for your employees.
What is a Flexible Spending Account (FSA)?
A Flexible Spending Account (FSA) is an employee benefit that allows employees to use pre-tax dollars to pay for certain medical expenses not covered by insurance. This can include specialist visits, medications, co-pays, and more.
Through the agreement, employees submit receipts for their medical expenses to their health insurance provider. The provider then reimburses the employee, using pre-tax funds from their FSA.
The maximum annual contribution that employees can make to an FSA is $3,200 in 2024. This money can be used by your employees from the beginning of the year. However, unused funds are typically lost at the end of the year. Some FSA plans allow employees to carry over up to $640 of unused funds into the next year or offer a short grace period to spend them.
FSAs: What to Know as an Employer
When considering FSAs, employers can choose to contribute to their employees’ accounts. These contributions are typically tax-deductible.
Offering FSAs adds administrative responsibilities for your HR department. Managing the paperwork and reimbursement process requires careful organization and attention to detail. By ensuring that employees understand how to maximize their FSA benefits, HR can help them make the most of this valuable perk.
What is a Health Savings Account (HSA)?
A Health Savings Account (HSA) is a tax-advantaged savings account used to pay for qualified medical expenses, such as medication, chiropractor visits, and co-pays for appointments. It’s available to individuals enrolled in a high-deductible health insurance plan.
Employees contribute pre-tax funds to an HSA. These funds can be used with a debit card to pay for medical expenses. The maximum annual contribution to an HSA in 2024 is up to $4,150 for an individual or $8,300 for a family. In this case, unused funds can roll over to the next year, allowing you to use them at any time.
HSAs: What to Know as an Employer
Many employers choose to contribute to their employees’ HSAs, although it’s not mandatory. There are two main ways to do this:
- Through a Section 125 Plan or ‘cafeteria plan’, which typically includes other benefits besides HSAs, such as life insurance or dependent care assistance.
- As a separate, standalone benefit, with contributions scheduled at the beginning of the year or monthly.
Implementing and managing an HSA involves significant administrative tasks. Employers must provide plan descriptions to clearly communicate the HSA details to their employees, manage enrollment, update W-2 forms, and fill in other necessary tax forms, such as Form 1099-SA.
What’s the difference between an FSA and HSA?
Let’s uncover the key differences between FSAs and HSAs:
| FSAs | HSAs | |
| Eligibility | As long as you offer this benefit as an employer, FSAs are generally available to all employees, regardless of their health insurance plan. | Available only for employees enrolled in high deductible health plans. These plans typically have higher deductibles and out-of-pocket maximums compared to traditional health insurance plans. |
| Account ownership | Employer-owned agreement. The employer establishes and administers the FSA plan. | Employee-owned account. Employees have full control over their HSA funds, including investment decisions and withdrawal options. |
| Unused funds | Funds become available at the beginning of the plan year and generally work on a ‘use it or lose it’ basis. Some plans may offer a grace period of up to 2.5 months to spend remaining funds. Additionally, certain plans allow for a limited amount of funds to be rolled over to the next year. | The money contributed to this plan stays in the HSA account indefinitely and rolls over from one year to another. HSA funds can also be invested for potential growth. |
| Portability | FSAs are often tied to a specific employer’s plan. If an employee changes jobs or health insurance plans, they may need to terminate their existing FSA and open a new one with their new employer. | Employees maintain HSAs indefinitely. Even when they change jobs or health insurance plans, they can continue to contribute to and use their existing HSA. |
FSA vs HSA: What’s the Right Choice for your Company?
That depends on what type of coverage you offer for your employees.
If you offer a high-deductible plan, your best option to lower your workforce’s health care costs will be to add an HSA option for employees. This gives them the option to save money on their healthcare needs.
On the other hand, an FSA is a great benefit to offer if you have a lower deductible plan. Employees can save additional money by being reimbursed, tax-free, for their out-of-pocket healthcare expenses.
The best option for your company will depend on your employees’ needs and your specific goals. Consulting with an HR expert can help you make an informed decision.
Expand Your Benefits Offerings with Access Point
Now that we’ve outlined the differences between an FSA and an HSA, you’ll be ready to make an informed decision.
However, navigating employee benefits can be time-consuming and overwhelming. As an employer, you want to provide competitive offerings that help you attract and retain top talent while ensuring compliance with ever-changing regulations.
That’s where Access Point comes in. As a leading Professional Employer Organization (PEO), we specialize in managing employee benefits on behalf of our clients. Our team of experts can help you design competitive employee benefits packages for your employees, negotiate affordable rates, and stay compliant with regulations. We can also handle all the admin tasks related to benefits, such as enrollment, eligibility tracking, employee inquiries, and more.
By partnering with us, you can focus on running your business while we take care of your employee benefits. Ready to learn more? Contact us today for a free consultation.