Rising healthcare costs pose a significant challenge for small businesses and their employees.

This is why it’s important to understand health savings accounts (HSAs) and flexible spending accounts (FSAs). Both are tax-advantaged savings accounts that help participants cover qualified medical expenses and are designed to work in conjunction with qualifying plans. However, there are significant differences between each type of account. Here are a few things to consider:

• Eligibility
  To open an HSA, employees must be enrolled in a high-deductible health plan (HDHP), not covered by other health insurance, and not enrolled in Medicare. FSAs can be used in conjunction with most health insurance plans.
• Ownership
  HSAs are owned by the employee. This means that the account remains with the employee even if they change jobs, and they can control it throughout their work life. FSAs are employer-owned. If an employee leaves the company, any unused funds are forfeited.
• Spending Requirements
  With HSAs, unused funds roll over to the next year, allowing savings to accumulate and potentially grow over time. FSAs largely have a “use it or lose it” rule that requires users to spend funds during a set plan year. There are rollover and grace period exceptions, but they also have limitations.
• Access to Funds
  HSA owners can only spend the amount currently saved in their accounts. In contrast, FSA users generally have access to their entire contribution election from the beginning of the plan year, allowing users to budget their allocations for predictable medical expenses like checkups, prescriptions, or physical therapy sessions.
• Contribution Options
  HSAs allow users to set contributions during open enrollment and adjust them throughout the year based on qualifying life events. FSA contributions are set during open enrollment but cannot be changed until the next open enrollment period – typically one year later.
• Investment Options
  Some HSAs allow participants to invest a portion of their funds, allowing them to begin saving for healthcare expenses later in life or even supplement a retirement plan. FSAs do not offer investment options, and all contributions remain as cash.

Taking Charge

For employees, these accounts can be particularly advantageous depending on their healthcare and budgeting needs. To ensure everyone gets the most out of these accounts, consult our benefits advisors before deciding. To ensure you make the right decision for your employees, consult our experts for assistance.