Insurance can be confusing enough, but with a Health Savings Account (HSA) or a Flexible Spending Account (FSA) it can be even trickier. While most people enrolled in eligible programs are doing so for tax reasons, many aren’t getting all the benefits they’re paying for. A recent study showed that 77% of people made mistakes when signing up for their benefits, and that nearly half of them admitted those mistakes cost them money.
If you are not currently enrolled in either an HSA or FSA, you might be losing money. These programs cover expenses you would normally pay for out-of-pocket, and they provide great tax benefits, too. In fact, accountants suggest this is an often-overlooked tax benefit most people could take advantage of.
How it Works
Before diving into what you can do with your benefits, we should first review the basics about how these two programs work and what their differences are.
HEALTH SAVINGS ACCOUNT
Health Savings Accounts are programs that allow the user to transfer funds into medical savings as part of a high-deductible health plan. The funds you contribute work sort of like a medical IRA, which build up as you save for retirement. These programs benefit both the employer and the employee, reducing the tax liability of both. Funds that are withdrawn for non-medical expenses will be subject to a penalty tax.
- Not subject to federal income tax
- No deadline for withdrawal
- Out of pocket limits include: deductibles, coinsurance, medication, and copays, but not premiums.
- Self-reimbursement can occur at anytime, meaning you can pay expenses out-of-pocket to let your HSA grow tax free, and then pay yourself back later.
FLEXIBLE SPENDING ACCOUNT
Flexible spending accounts are another great option for those looking to reduce their tax liability.
This money is taken incrementally throughout the year and can be applied to many areas that insurance normally wouldn’t cover, as well as normal medical and dental care. Employers like it because they are able to subtract FSA’s from their payroll tax liabilities. But beware, with great reward, comes greater risk.
- Used most often for medical and dental expenses not paid by insurance, including co-pays, deductibles, medications, bandages, and many other costs that you would have paid for anyway.
- Most FSA accounts, but not all, are specific to the plan year only. Expenses must occur during that calendar year and remaining balances are returned to the employer.
- To get the most out of your FSA, use your funds at the end of the plan year to cover important medical, dental, and vision care. This is the time to get braces, cleanings, new glasses, and stock up on important medical supplies. Keep your receipts!
Setting aside tax-free money to cover healthcare costs you were going to pay anyway is not only smart, but it can actually cut your costs by as much as 40%. Your routine items such as co-pays and medications now help to reduce your tax liability, but this benefit comes with a big draw-back: Use it or lose it, which costs Americans about 14% of the money they invest into FSA’s every year.
New rules are allowing these programs to roll over up to $500 left in your FSA to the next calendar year. Alternatively, employers may offer to extend the deadline up to 10 weeks before you lose your benefits. Both of these modifications are optional, however, so find out if your company offers them.
Don’t Lose Your FSA Dollars
How do you use your account benefits?
First, make sure the cost is covered under your plan, and then only pay for what your out-of-pocket expenses would be. For example, say you visited the office to repair a cracked filling and the bill was $300. After applying benefits, we might find that the actual out-of-pocket expense for you is $72, which will be paid at the time of visit.
NOTE: It’s important you keep documentation and receipts for your expenses, as the insurance company may ask for records to demonstrate those expense were legitimate and within the service period covered.
Procedures that are purely cosmetic (such as teeth whitening or porcelain veneers) usually aren’t covered. However, those that improve dental health usually are, such as crowns, bonds, or dentures.
There are many other dental services you can take advantage of to maximize the use of your flexible spending account, too.
Do your children need non-covered sealants? Use your FSA before the end of the year to get them taken care of! Are your children overdue for teeth cleanings? Get them in before the money in your FSA disappears! Dental care is one of the best ways to utilize the benefits of your HSA and FSA programs.
Schedule your appointment today and beat the end-of-year rush.
A Healthy Mouth is a Happy Mouth!
~Dr. Duffy
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