During a recent evaluation, a client informed me he didn’t want to have a HSA or Health Savings Account.  I asked why.

His response: After speaking with a few friends and an auto insurance agent, I was told that in a bad health year it makes sense, but in a good health year, I would lose my money at the end of the year.

Not true. I informed him.

This conversation happens all to often in health insurance, due to a plethora of misinformation.  Most people have employer sponsored group health insurance, their primary exposure to pre-tax plans are Flexible Spending Accounts or FSA’s.

While similar, there are some important differences between the two:

1.  No insurance is needed with a Flexible Spending Account ( FSA ) – since it is just a “spending account” it doesn’t need to be tied to a health insurance plan like an Health Savings Account.  You can have an FSA without any health insurance if you wanted to.

2.  Use it or lose it – Does not apply to a Health Savings Account ( HSA ). Your unused dollars roll over year to year.  It’s your money and you get to keep it.  With an FSA or Flexible Spending Account, it you don’t USE it by the end of the year, any remaining funds are lost.  Where does the money go?  To the company offering the FSA.

3. Type of Expenses Covered – An FSA can be used for both medical expenses and child care expenses, whereas the HSA is only for qualified medical expenses.

Both Health Savings Accounts and Flexible Spending Accounts have their place, and both are valuable tools to assist you with you medical needs.  What’s great is you can mix and match the two as your needs change.

Originally posted 2010-03-24 05:56:08. Republished by Blog Post Promoter

Tags: Differences between a HSA and FSA, Flexible Spending Accounts, FSA's, Health Savings Accounts, HSA's