HSA Accounts Vs. FSAs
HSA and FSA Drugstore Savings
Health Savings Accounts (H.S.A.) have become increasingly popular since their January 1, 2004, debut. But what exactly is an H.S.A and how does it differ from other plans such as Flexible Savings Accounts (F.S.A.)? Who qualifies for these plans? How are the plans funded? Who benefits?
A Health Savings Account is a tax exempt trust or custodial account that is created to pay for I.R.S defined qualified medical expenses. (Section 213 D of the I.R.S. Code) Funds contributed to the H.S.A. are tax free, they accumulate tax free interest and withdrawals are tax-free, as long as the withdrawn funds are used to pay for a qualified medical expense. Anyone is eligible for this plan as long as the account holder is covered by a qualified high-deductible health plan. A qualified high-deductible health plan is defined as having a minimum annual deductible of $1,050 for an individual and a minimum annual deductible of $2,100 for a family.
A Flexible Savings Account is a cafeteria plan authorized under Section 125 of the IRS Code. F.S.A.s are also created to reimburse for qualified medical expenses. (Section 213 D of the I.R.S Code) However, interest does not accrue in an F.S.A. Also, only those whose employer offers an F.S.A. are eligible for this plan, and there does not need to be a corresponding health plan to qualify for an F.S.A.
* Funding an H.S.A. can be done either by an individual or an employer. Effective January 1, 2006, the annual contribution levels for H.S.A.s are as follows: * For an individual with self-only coverage, the maximum is the lesser of 100% of the deductible but no more than $2,850. * *For family coverage, the maximum is the lesser of 100% of the deductible but no more than $5650. * *For those individuals who are 55 and older, catch up contributions are allowed in the amount of $800.
It is important to note that all H.S.A. contributions apply pro rata based on the number of months of the year the taxpayer is eligible. H.S.A. funds may be carried over from year to year; there is no "use it or lose it" clause. H.S.A. funds are also portable, as employees may take the account with them when leaving or changing jobs. Funds may be withdrawn that are not used to pay for qualified medical expenses, but will be subject to a penalty. In addition, H.S.A. funds can only be used to pay health insurance premiums under the following circumstances: the individual is unemployed, is receiving COBRA, or is over the age of 65. H.S.A. funds cannot be used to pay for Medicare supplement policies.
Funding a F.S.A. can be done either by an individual or an employer. However, there are no limits to the contributions for an F.S.A. Any leftover funds may not carry over to the next year. F.S.A. funds are not portable and withdrawals for non-medical expenses are not permitted. A "premium-only" F.S.A. may be set up to pay for a portion of the employees' health insurance premium. This is done typically under a salary reduction arrangement.
(Health Savings Accounts vs Flexible Savings Account By: Charlene Bigelow General Agent, OSBA Insurance Agency, Inc.)
(* FY2008 facts-, maximum monthly contributions have been raised to the
federal statutory limits and are not tied to the deductible for the OA-H health plan.)
About the Author
Does your family have HSA Accounts or FSAs? Visit our HSA-FSA drugstore
Tell others about
this page:
Comments? Questions? Email Here