When it comes to employee healthcare benefits, there are many options out there. But which one is best for your business? FSAs and HSAs, are both popular choices, but each has its own advantages and disadvantages, so it’s important to understand the difference before choosing one for your company. 

 

Our employee benefits pros at Vested HR walk you through what you should know about each to help you decide which might be the best for you.  

 

FSAs & HSAs What Do They Mean?  

 

The first step in understanding which medical savings account is best for your business is to understand the key differences between the three common types. Let’s look at each a little closer.  

 

Health Savings Account: HSA 

 

HSAs are a benefit that employers can offer as a way for employees to set aside tax-advantaged medical savings for copays, deductibles, and other medical expenses.  

 

An HSA is like a standard checking account. 

Employees must track their contributions,  

expenses, and reimbursements.  

 

The caveat: Only individuals who are covered by a high-deductible health plan (HDHP), are not enrolled in Medicare, and do not qualify as a tax dependent of someone else are eligible for an HSA.  

 

Contributions are made into the HSA account by the employee and/or the employer up to a specific amount each year.  

 

Who is an HSA Suitable For?

 

HSAs are a good option for healthy employees who generally receive medical care for annual checkups and have infrequent medical needs.  

 

Whatever amount employees save in their HSAs, they can keep, grow tax-free, and then withdraw from, even years later.  

 

Who Owns the Account?

 

HSAs are owned by the employee and follow them when they resign, are terminated, or retire.  

 

What Expenses are Covered by an HSA?

 

An HSA covers qualified medical expenses including most medical care such as dental, vision, and eligible over-the-counter drugs. A few examples include: 

 

  • Office visit copays 
  • Health insurance deductibles 
  • Dental expenses 
  • Vision care 
  • Prescription drugs 
  • Imaging (X-rays, MRIs) 
  • And more  

 

 Using an HSA to Your Advantage

 

A high-deductible health plan with an HSA can help save your company money because high-deductible plan premiums are lower than most traditional plans.  

 

There are tax benefits for employers as well. Reducing your employee’s taxable income decreases your tax liability. The lower your employee’s FICA tax liability, the less you will have to pay.  

 

Flexible Spending Account: FSA

 

An FSA is an employer-based plan that pays for qualified medical expenses using pretax dollars, before federal withholding, FICA tax, or state withholding taxes are applied to the amount that is deducted from the employee’s pay.  

 

Employers and employees can both contribute to the FSA, but there is a cap on the amount that can be contributed to an FSA each year.  

 

Who is an FSA Best For? 

 

A medical FSA is a great choice for employees who expect to have out-of-pocket medical care expenses and wish to pay for those expenses with their pretax funds. Also, employees with a medical FSA have immediate access to the full amount they elected to contribute for the tax year, making it a great option for those who have medical expenses to pay for early in the year.  

 

Who Owns the Account?

 

The employer owns the FSA account. Once employment is terminated, employees are generally no longer eligible to participate in the medical FSA and will forfeit any unreimbursed contributions.  

 

Depending on the employer’s election, unused contributions are either forfeited or a portion can be carried into the next plan year.  

 

What Expenses are Covered by an FSA?

 

An FSA covers many of the same qualified medical and dental expenses that are covered by an HSA, except for Medicare premiums.  

 

Using an FSA to Your Advantage

 

Since employee contributions to a medical FSA are made on a pre-tax basis, this reduces the employee’s taxable income and tax liability. Businesses are not required to pay the employer portion of the Social Security tax on the contributions that employees make to their FSAs. 

 

Learn More > Our Guide to Employee Benefits  

 

Partner with a PEO for Employee Healthcare Benefits  

 

If you’re looking for a way to provide your employees with top-notch healthcare benefits, partnering with a PEO like Vested HR may be the right solution for you. We can help you navigate the complex world of healthcare reform and compliance, and offer a variety of health insurance options for your employees.  

 

Working with a Vested HR can also help you manage costs by giving you access to our group purchasing power. And, because we handle all the administrative tasks associated with employee benefits, you’ll have more time to focus on running your growing business. 

 

Ready to get started? Contact us for a consultation today at (844) 928-0925 or (727) 474-2114!