What is a Flexible Spending Account (FSA) or Health Savings Account (HSA)?

For individuals who are not familiar with the inner workings of Flexible Spending Accounts (FSA) and Health Savings Accounts (HSA), they can seem unnecessary or difficult to use. However, some general knowledge will allow many individuals to make an educated decision.

Many companies have begun to offer these types of healthcare accounts to their employees. During benefits enrollment, an employee is given the option to elect a set amount for which they will be granted during the upcoming year. The employee’s desired amount will then be deducted from their paychecks beginning with the first pay check of the election year, in equal installments. (i.e.: A $1,300.00 calendar year election would be deducted in increments of $50.00 per biweekly pay period or $25.00 per weekly pay period.)

The election amount is determined solely by the employee and may be as much or as little as he wishes, within individual plan guidelines. To best estimate what amount is needed, an employee should refer to their previous year’s medical expenses, if there are to be foreseeable cost differences, those should be calculated as well. There are also calculators available online to help in determining approximate healthcare expenses.

Funds allocated to an employee may be used for any allowable healthcare expense. Most of the allowable expenses are medical, dental, or vision deductibles, co-pays, coinsurances, and prescriptions. The only things not covered are usually cosmetic procedures of any kind and most over-the counter items, but recipients should review individual plan details and restrictions as they will vary by company.

A common misconception related to the FSA’s and HSA’s is that the amount of available funds is directly proportionate to the current amount paid in at the time an expense is incurred. However, FSA’s or HSA’s afford individuals access to their entire elected amount from the first day of the benefit year. Additionally, FSA’s and HSA’s do not require credit approval or incur interest charges, as do medical credit accounts.

Flexible Spending Accounts and Health Savings Accounts have become a useful tool for many employees and their families. Individuals who have been unable to seek medical care in the past are now able, regardless of income limitations, credit history, or personal savings. Quality medical care should be a right for every individual and these accounts are helping to shape that reality.