The benefits of health spending accounts

Health spending accounts are a great way to save additional money to pay for out-of-pocket, qualified health expenses, such as:

  • Medical care
  • Prescriptions
  • Dental and vision services

Save money before taxes

Most health spending accounts let you decide how much money you can put aside. And then that money is taken out of your paycheck before taxes. This lowers your total income, so you pay less taxes yearly. 

Health spending accounts can also be used to pay for things like childcare and certain commuter expenses. There are three kinds of accounts you can choose from:

Each type of account works a little differently, however, they can all be used in a similar way. Let’s explore each type.

What’s an HSA?

What are the advantages of an HSA?

Take your HSA with you

If you change jobs, choose a different health plan, or retire, it’s your money so it goes where you go.

Your money works for you

Every year, your money earns interest. And you can invest it so you can earn even more.

No taxes equal more savings

Money in an HSA is added before taxes are taken out. You can add money from your bank account or through payroll deductions. Plus, you’re not taxed on earned interest. And you don’t pay tax when you use the HSA on qualified medical expenses. One thing to keep in mind is that you cannot make contributions once you’re eligible for Medicare.

What’s an HRA?

Unlike HSAs which are self-funded, HRAs are entirely funded by your employer. But just like an HSA, you can use the money in your HRA to pay for out-of-pocket costs, including:

  • Medical deductibles
  • Copays
  • Coinsurance
  • Medical deductibles
  • Qualified medical expenses, such as prescriptions and dental and vision care.

A little extra help from an HRA can go a long way

Employer-funded HRAs can help offset unforeseen medical costs and keep more money in your pocket. For example: if your insurance only pays a portion of the cost for a healthcare service, you’re responsible for the rest. Most HRAs through your employer will then kick in and pay your provider directly, so you don’t need to worry about paying the difference. 

Be sure to check with your employer to see if your health plan comes with an HRA.

What’s an FSA?

FSAs work a lot like HSAs with one important difference.  You can use an FSA to pay for health care expenses for both you and your dependents, even if your dependents aren’t covered by the same health plan. Money contributed to FSAs needs to be used in your current plan year as these funds do not roll over year to year.

Here’s some of what an FSA covers *

  • Medical deductibles, copays, and coinsurance
  • Prescriptions
  • Dental and eye care
  • Over the counter medicines
  • Glasses and contacts
  • Hearing aids
  • Diabetic supplies

*Review a detailed list of covered services.

Two types of FSAs offer even more savings

Limited Purpose FSAs (LPFSA) and Dependent Care FSAs allow you to cover and pay for additional expenses that are outside of what’s considered a qualified medical expense.In other words, they also enable you to maximize the savings potential of your HSA.

Limited Purpose FSAs (LPFSA)

If you’re enrolled in an HSA, you may also be eligible to enroll in an LPFSA. This type of FSA can be used to help pay for dental and vision services, such as dental implants and cataract surgery.

Dependent Care FSAs

Use this type of FSA to care for the people you care for the most, including:

  • Qualifying children under age 13 who live in the same household
  • Spouses, older children, or relatives who are physically and mentally unable to carefor themselves

Dependent Care FSAs can also be used to pay for:

  • Licensed daycare, preschool, and nursery school and
  • After school care
  • Summer day camps
  • Daily care for older adults

Some FSA plans may allow you extra time to carry over money to give you extra time to submit expenses. Talk to your employer about the details of the FSA they offer.

Regardless of which health spending account you choose each type (HSA, HRA, or FSA) offers ways to save on qualified medical expenses.  Health spending accounts offer one more advantage – peace of mind knowing that you’re better prepared for the unexpected.