Providing the right coverage that truly works best for your clients and their employees should be your ultimate goal as a broker. However, there is no one-size-fits-all approach to employee benefits. Chances are your client's workplace is made up of a variety of employees with different needs. That’s why it’s important to present multiple plans and help your clients choose what’s best for their employees. This is especially true when offering specific savings accounts like Health Savings Accounts (HSA) and Flexible Spending Accounts (FSA).
Both HSAs and FSAs are pre-tax savings accounts that let participants pay for qualified medical expenses, such as doctor's visits and prescription medications. While both are similar in concept, they have key differences that might make one a better fit than the other for employees in certain situations. Below, we discuss the key differences between HSAs and FSAs and how to help employers build the right benefits plan.
What's the Difference Between an HSA and FSA?
Although HSAs and FSAs both allow participants to use pretax dollars to pay for eligible medical expenses, there are some key differences between the two. These typically include enrollment eligibility, contribution amounts and limits and rules for rollovers.
HSA: Key differentiators
When discussing with your clients, these are the main differentiators to consider when discussing a Health Savings Account (HSA):
- Qualifications: Participants must have a high-deductible health plan (HDHP), they cannot be eligible for Medicare and they cannot be claimed as a dependent on another person’s tax return.
- Annual contribution limits: The maximum contribution limit for 2022 is $3,650 for an individual and $7,300 per household.
- Account ownership: Owned by the participant and will carry over if there is a change in employment.
- Rollover rules: Unused funds roll over every year.
- Contribution changes: Participants can change their contribution at any time as long as they don’t exceed the contribution limits.
FSA: Key differentiators
On the other hand, these are the key points to highlight when presenting an FSA to your clients:
- Qualifications: Accounts must be set up by the employer.
- Annual contribution limits: The 2022 maximum contribution limit for an individual is $2,850 and $5,700 per household.
- Account ownership: Owned by the employer and will not carry over if there is a change in employment–unless eligible for continuation through COBRA.
- Rollover rules: The employer chooses whether the funds will expire at the end of the year if employees get a two and a half month grace period or the option to roll over up to $570 into next year’s FSA.
- Contribution changes: Participants can change their contribution at open enrollment, if their family situation changes or if there is a change in their plan.
Helping your clients choose the right plan
Your clients can offer both HSAs and FSAs. However, their employees might be limited when it comes to enrollment eligibility.
For example, employees only qualify for an HSA if they have a high-deductible health plan. If your client does not offer a high-deductible health plan, then an HSA might not be the best fit for their employees because they would need to enroll in a high deductible plan outside their employer. However, if your client offers a high-deductible plan, then an HSA is a perfect pairing if it aligns with their employee’s needs.
This is why it’s important to have conversations with your clients to truly understand the needs of their workforce. Be sure to communicate with your clients ahead of open enrollment. Ask them questions about the types of plans they currently offer, workforce demographics and overall health of their employees. These questions can help you best determine your clients' needs. Together, you can build the right benefit plan for their business and their employees.