11 July 2017

Explaining the Differences between FSAs and HSAs

Are your employees still struggling to understand the differences between flexible spending accounts (FSAs) and health savings accounts (HSAs)? According to Fidelity Investments, 65 percent of Americans do not understand how an HSA works. And 73 percent said an HSA is pretty much the same as an FSA.

Many also don’t understand the rules surrounding unused funds at the end of the year. An FSA is a use-it-or-lose-it account. HSA balances carry over from year to year, allowing account holders to accumulate their savings for qualified health care needs. Yet, most employees incorrectly believe they will lose unspent money in an HSA at the end of the year.

As more employers move to high deductible plans with HSAs, it’s important to educate employees about how an HSA works and the triple tax advantages it provides. At the same time, employees who stay in lower deductible plans should understand how they can use an FSA to their advantage.

  • Be clear about which plans can be used with an FSA and which are connected to an HSA.
  • Explain both types of accounts in clear, concise terms, using everyday language.
  • Provide examples of how the high deductible plan with HSA compares in total out-of-pocket costs to other plans. Include the cost of coverage in your examples and feature scenarios for light, medium and heavy users of health care services. These “people like me” scenarios can help employees determine which plan might be right for them.
  • Offer online or onsite meetings to explain both accounts and answer questions on the spot.
  • After annual enrollment, continue to educate employees on their benefits via your website.
  • Point employees to online information from your FSA and HSA administrator as well as general information.

As more employees transition to plans that require them to take more responsibility for their health care decisions, it’s important that they receive the tools and education to make smart decisions.