How an FSA or HSA Can Make Paying for Health Care Easier

How an FSA or HSA Can Make Paying for Health Care Easier

1000 667 Satta Sarmah Hightower

Even if you just stick to the basics, staying healthy doesn’t come cheap. A family of four spent an average of $28,000 on health care in 2018. And even if you have health insurance, it doesn’t cover everything — you’ll still probably have to pay up for a portion of your health care services out of pocket.

But anyone who would rather spend their money on almost anything but health expenses, listen up: FSAs and HSAs open up new ways for you to reduce your costs when paying for health care.

These accounts also come with certain tax advantages. Here’s why you should consider opening an FSA or an HSA to better manage your health care costs.

What Is an FSA?

An FSA, or flexible spending account, allows you to save pretax dollars in a dedicated account to pay for any out-of-pocket costs your health insurance doesn’t cover.

If you have an employer-sponsored health plan, you can use your FSA to pay for your medical and dental expenses, deductibles, copays and prescriptions — among other qualified expenses — for you and your family.

You determine how much money you want to contribute to your FSA, with deductions taken from your paycheck. For 2019, you can save up to a total of $2,700 in an FSA.

Pros

  • You’ll contribute pretax dollars, which can lower your taxable income and reduce your taxes.

  • Your employer fully funds your FSA before you use it, so after you decide how much to contribute for the year, that total amount is immediately available to use.

Cons

  • You only can sign up during open enrollment.

  • You can’t use FSA funds to pay for monthly premiums.

  • You have to use all the money in your FSA within the plan year or risk losing it — unless your employer either offers a grace period or allows you to carry $500 over to the next year.

What Is an HSA?

An HSA, or health savings account, also allows you to use pretax dollars to pay for qualified medical expenses. However, unlike an FSA, you can only open an HSA if you have a high-deductible health plan, which means your deductible is at least $1,350 (for individuals) or $2,700 (for families). Several banks and financial institutions offer HSAs, so you can open an account even if you don’t have health insurance through a traditional employer.

For 2019, you can contribute up to $3,500 to an HSA if you have individual coverage and $7,000 if you have family coverage. Those 55 and older can contribute an extra $1,000 to their HSAs.

Pros

  • You can sign up whenever you want.

  • Contributions are tax-deductible, which can reduce your taxable income and taxes.

  • The money you withdraw from an HSA isn’t taxed if it goes toward qualified medical expenses.

  • Unlike FSAs, HSAs aren’t use-it-or-lose-it. You can roll over the money in your HSA from year to year.

Cons

  • You must have a high deductible health plan to qualify, which means higher out-of-pocket costs.

  • You’ll be hit with a 20 percent tax penalty if you withdraw money from your HSA to cover nonmedical expenses before you reach the age of 65.

Managing Your Health Care Costs

Although FSAs and HSAs can offset some of your health care costs, that doesn’t mean your health care spending should be a free-for-all.
It’s still worth exploring ways to cover gaps in your health coverage with supplemental plans. Accident insurance, for instance, comes into play in the event of an accident or injury. Critical illness insurance has you covered when you’re facing a life-threatening illness and can’t work, and hospital indemnity insurance helps protect you from the costs of qualified medical services, such as a hospital stay, ER visit or surgery. All of these options pay out cash benefits to cover health costs (or anything else you’d like someone else to foot the bill for).

Paying for health care is no easy task, even with insurance. Make sure you’re taking advantage of every tool available to prepare you for tackling these costs. After all, your bank account needs to stay healthy, too.

Satta Sarmah Hightower

Satta Sarmah Hightower primarily focuses on health care, technology, and personal finances.

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