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Should You Offer Employees an HSA or FSA?

As an employer, you know that offering your team members the right benefits can make a big difference when it comes to attracting and keeping top talent. When it comes to healthcare, however, it can be hard to know what the “right” benefits are, especially given all the acronyms you have to decode.

Integrity Employee Leasing is dedicated to helping you make the right choices for your business and your employees, and in today’s article, we’ll be breaking down the difference between two popular savings accounts: HSAs and FSAs. Read on to learn more, and contact Integrity today to learn how we can help you navigate employee insurance!

HSA: Health Savings Accounts

To start, a health savings account (HSA) is an employee-owned account that allows your team members to direct funds to healthcare-dedicated costs without tax. However, there are annual contribution limits. In 2019, those limitations are $3500 for individuals and $7000 for families. The Internal Revenue Service typically adjusts these limitations every year to accommodate changing costs of living.

How It Works

Employees can choose the amount of pre-tax money they want to dedicate to their HSA – or change it – at any time. Then, those funds grow over time to be used for healthcare expenses like glasses or contacts, chiropractic care, or prescription drugs.

Employee Eligibility

There are a few restrictions on who can take advantage of an HSA. For one, employees must participate in a high-deductible health plan that is HSA-compatible. They also can’t be enrolled in Medicare or be listed as a dependent on another individual’s taxes. If you are self-employed, you can still access an HSA as long as you have a high-deductible health plan.

Benefits

There are many advantages to HSAs. For example, the funds contributed to the account stay in the account year after year, so your team members don’t have to use them all at once. An HSA is also portable — it will follow an employee if they change positions or employers, which can be a big draw. As we mentioned above, an employee can also change how much they are contributing to their HSA at anytime rather than choosing an amount during enrollment that is locked in for a year, and they have the option to make one-time fund transfers.

Drawbacks

One of the biggest drawbacks of an HSA is the required pairing with a high-deductible health plan. A high-deductible plan has its benefits, but the high upfront costs can deter your team members from participating. There is also the possibility of fees. If an employee withdraws from their HSA to address non-qualified healthcare expenses, then that money is subject to taxes as well as a 20% fee. After they turn 65, they won’t be subject to fees, but they will owe taxes on any withdrawals.

FSA: Flexible Savings Accounts

A flexible savings account, or FSA, is an employer-owned account that functions much like an HSA. Employees can direct pre-tax money into the account and then use those funds for out-of-pocket medical costs. Like HSAs, FSAs also have annual contribution limits. In 2019, that limit is $2,700, but as we discussed, this limit is likely to change each year.

How It Works

There is a wide overlap in how HSAs and FSAs operate, including the fact that an employee selects what they want to contribute. With an FSA, that employee must determine the amount they want to contribute throughout the year during enrollment.

FSA withdrawals can be used toward medical expenses as well as child care expenses. It does not have to be paired with a health insurance plan like an HSA plan, but it is still intended to be used in conjunction with health insurance. An FSA is not a replacement for employee insurance — if you choose to offer FSA options, you also need to offer health insurance.

Employee Eligibility

Unlike an HSA, there are no requirements on what kind of health insurance plan your employees utilize if they also want to utilize an FSA. In another departure from HSA standards, self-employed workers are not eligible for FSAs.

Benefits

Flexible savings accounts can be a great aid for employees working to cover healthcare costs. The tax-exempt funds can not only be used for out-of-pocket healthcare costs like deductibles, copays, and medication, but an FSA can also be used to pay for child care. Employees also have the opportunity to spend the contents of their FSA even before the account is fully funded.

Drawbacks

One disadvantage is that employees have to decide what they want to contribute to their FSA during enrollment, and they are locked into that amount for the remainder of the year. FSAs are also “use it or lose it” savings accounts — funds typically do not carry over from year to year. As an employer, you do get to keep any unused funds, but there are limits on how you can spend them.

Tackle Employee Benefits With Integrity

You may know exactly what kind of benefits and employee insurance you plan to offer, or you may have even more questions about health savings accounts than you did when you first started reading this blog. Either way, Integrity Employee Leasing is here to help.

As a professional employer organization, we offer a wide variety of services made to help small- to mid-sized companies succeed, including employee benefits administration. Integrity can connect you with the best options to meet your employee insurance requirements, and we offer benefits administration services at no cost to you! By partnering with us, you can not only unlock plans that are often reserved for bigger companies, but you also gain the advantage of our experience and expertise.

Give your employees what they deserve. Contact Integrity Employee Leasing today to discuss health insurance, benefits, and more!

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