Open-enrollment season often exposes the gaps in knowledge about certain elements of health packages available to employees. One that seems to constantly befuddle the choice-makers is the difference between those closely related acronyms — HSA and FSA — each of which has critical elements that make them unique.
The confusion reported by consumers around the various attributes of the acronym dynamic duo is almost staggering, given the many years plan advisors have been attempting to explain the differences. The Society for Human Resource Management says that three-quarters of respondents to a survey about the various plans did not know the key differences.
So, again, here are the distinctions:
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Health savings accounts can be carried over from year to year and go with the employee wherever life takes the person. These accounts must be tied to a high-deductible health plan.
With a flexible savings account, it's use it or lose it. No carry-overs from one year to another. And if you leave the company-sponsored plan, the money stays with the company. But these need not be linked to a high-deductible plan.
It's the HSA option that is gaining in popularity and, hopefully, is becoming better understood by employees. It couldn't be much more poorly understood, at least according to a survey by Fidelity Investments. This study found that 65 percent of respondents who make household health-benefit decisions don't understand them.
Yet their popularity grows. SHRM reports that 42 percent of organizations offered an HSA, or health savings account, in 2013, compared to just 32 percent four years earlier. One assumes this is a response to employee demand.
For 2014, some key numbers that apply to the health savings accounts will be changing.
Contribution limits for individuals will increase from $3,250 to $3,000, and for families from $6,450 to $6,550.
Maximum out-of-pocket expenses for high-deductible plans will increase from $6,250 to $6,350 for individuals and from $12,500 to $12,700 for families.
Minimum deductibles for the overall health plan and catch-up contributions for those 55 years old and older will not increase.
With the advent of the Patient Protection and Affordable Care Act, there's another new wrinkle in the health savings account matrix. The act allows parents to add adult children up to age 26 to their health plans. But the IRS sets the rules for dependent coverage by those plans, and the IRS defines a dependent child as someone who:
- Has the same principal residence as the covered employee for more than one-half of the taxable year.
- Has not provided more than one-half of his or her own support during the taxable year.
- Is not yet 19 (or, if a student, not yet 24) at the end of the tax year or is permanently and totally disabled.
The IRS is basically saying, if your son or daughter isn't listed as a dependent on your tax form, they don't quality as a covered child for purposes of a health savings account.
So as things now stand, health savings account plan members better read the fine print before assuming the kid is covered.
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Dan Cook
Dan Cook is a journalist and communications consultant based in Portland, OR. During his journalism career he has been a reporter and editor for a variety of media companies, including American Lawyer Media, BusinessWeek, Newhouse Newspapers, Knight-Ridder, Time Inc., and Reuters. He specializes in health care and insurance related coverage for BenefitsPRO.
