Certain accounts, like an FSA or HSA, can help you save money on health care expenses. (Learn More) Essentially, you put aside pre-tax money into these accounts to later spend on health care expenses.
These spending accounts are available to help you pay for your medical bills if you have a high-deductible plan. An HSA is a health savings account, and an FSA is a flexible spending account. (Learn More)
Not everyone qualifies for an FSA or HSA, and there are specific steps to follow to open each type of account. (Learn More) You can use the funds from these accounts to pay for certain types of medical expenses, such as prescription medication purchased online. (Learn More)
What Is an HSA?
A health savings account (HSA) is a type of account that allows you to save money to pay for health care expenses. Money that is set aside in an HSA is not taxed, and this ultimately reduces your overall expenditure on health care.
The Internal Revenue Service (IRS) says that the following individuals can contribute to an HSA:
- The individual
- A family member
- Their employer
You do not have to pay taxes on HSA distributions used to pay eligible medical bills.
You should also become familiar with the fine print on HSA policies.
- Contribution limits: Per the IRS, if you have an HSA that came into effect in 2022, you could contribute up to $3,500 if your insurance plan only covers you and up to $7,000 if it covers your family.
- The last month rule: If you apply for an HSA during the first day of the last month of eligibility (usually the 1st of December of said year), you are treated as if you have had an HSA for the entire year.
- Testing period and eligibility: To ensure you are not charged taxes on your HSA, you must remain eligible for the rest of your testing period. The only exceptions to this are disability and death.
- Maximum contributions: You cannot contribute more to your HSA than the allowable amounts, even if you have more than one HSA.
- Medicare restrictions: If you have Medicare, you cannot contribute to an HSA.
What Is an FSA?
A flexible spending account (FSA) allows an employee to get some money back on some medical expenses. The majority of FSAs involve the employee setting up a voluntary amount of money that is destined for the account.
You can withdraw money from an FSA even if you have not set money aside yet. Your employer structures the FSA and has the freedom to establish the types of services or benefits you will get.
You and your employer may contribute to an FSA, and the contributions are not taxed. However, you must include your employer’s contributions as part of your income. The 2019 IRS entry says that employees cannot contribute more than $2,650 per year, and this fee may change with inflation.
Which Plan Is Best for Me?
In order to decide which of these accounts is best for you, consider the pros and cons of each.
Pros of HSAs
- Self-employed individuals can obtain an HSA if they have a high-deductible insurance plan.
- S. News & World Report says that HSAs have what is called a triple tax advantage:
- You do not pay taxes on contributions.
- Your wages are not taxed (provided you remain eligible).
- You do not pay taxes on money withdrawn as long as it is used for medical expenditures.
Cons of HSAs
- The IRS lists a lot of rules for how to obtain and remain eligible for an HSA.
- You cannot get an HSA if your high-deductible insurance plan does not qualify.
- An HSA may complicate your tax returns and reports.
Pros of FSAs
- Tax rules are much simpler.
- Your contributions do not have to be as large.
- You do not need to have money in your FSA account in order to withdraw.
Cons of FSAs
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- Only people with an employer can obtain an FSA. Self-employed people cannot obtain this account.
- You cannot change your contribution amounts because your circumstances change.
- You cannot roll over money from your FSA.
Using an HSA or FSA With Online Pharmacies
In March 2019, Amazon made the landmark decision to accept HSA and FSA cards as payment for eligible medical expenses, CNBC reported. This follows a step by Walmart, which also accepts HSA and FSA cards.
As such, it seems online pharmacies are the ones that decide if they will accept an HSA or FSA card as a form of payment.
Before making a purchase, make sure it is eligible. You should have no problem paying for products at licensed online pharmacies willing to accept these accounts as acceptable forms of payment.
Frequently Asked Questions
How can an HSA/FSA help me financially?
Both of these savings accounts allow you to set money aside that is not taxed. If you know or believe you will have an expensive procedure or can foresee medical expenses, using these accounts can help you save money in the long run. First, become familiar with how they work and which one is best for your needs.
What are the differences between an HSA and FSA?
One major difference is that self-employed people with a high-deductible insurance plan can get an HSA, but they cannot get an FSA regardless of their plan.
An HSA also has more complicated rules and higher contribution limits than an FSA. However, an HSA has the added advantage of rolling over unused money. Per Investopedia, an HSA allows you to keep the money in an account even if you change jobs.
With an FSA, you must use all the money you have set aside. In addition, your employer owns this type of account, and you cannot use the money if you change jobs.
Where can I open an HSA or FSA?
You can open an HSA with your employer, though some banks allow you to do this. An FSA is opened with an employer, and you must provide documentation to determine whether or not your medical expenses are eligible, per HealthCare.gov.
Can I use an HSA or FSA to pay for prescription medications at online pharmacies?
Yes, but at the discretion of the online pharmacy. Make sure the online pharmacy you want to shop at will accept HSA or FSA as a form of payment.
References
Health Savings Accounts: Advantages & Disadvantages. (May 2019). Investopedia.
Health Savings Account. HealthCare.gov.
The Differences Between HSA and FSA: Which Is Better? (May 2019). The Balance.
FSA vs. HSA: How to Make the Best Choice During Open Enrollment. (November 2015). U.S. News & World Report.
Health Savings of Flexible Spending Account. (November 2018). Investopedia.
Using a Flexible Spending Account. HealthCare.gov.
Amazon Takes Another Step Into the Medical Space by Accepting Pre-Tax Health Spending Accounts. (March 2019). NBC News.
Publication 969 (2018), Health Savings Accounts and Other Tax-Favored Health Plans. (March 2019). Internal Revenue Service.
