Preparing for Open Enrollment: HSA vs. FSA - How to Help Employees Choose the Right Plan for Their Needs

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Your goal during your open enrollment period should be to get your employees the coverage that truly works best for them. This shouldn’t be a one-size-fits-all approach, as your employees come from a variety of situations with differing needs.

Instead, your role as their employer should shift to presenting options and assisting employees in choosing what’s best for them. One area where the need for choice is most evident is when offering specific savings accounts -- mainly HSAs vs. FSAs.

While HSAs and FSAs are similar in concept, they have key differences that might make one a better fit than the other for employees in certain situations.

Why having options is important

Having options in your benefit offerings is crucial for having an inclusive and top-performing workforce. Addressing a wide variety of needs allows you to attract and retain a more diverse workforce, which is a driver for success.

So, while it’s always a good idea to set aside funds for medical expenses, unexpected costs and dependent expenses, one avenue might work much better for some employees while another works for others.

Since both offer tax benefits, the opportunity for employer sponsorship and cover many common healthcare costs, how can you help your employees navigate their choices? The first step is to understand the key differentiators between HSAs and FSAs.

HSA: Key differentiators

When talking with your employees, here are the top things to consider about Health Savings Accounts:

  • Only those enrolled in a High Deductible Health Plan (HDHP) are eligible to enroll in a HSA.
  • HSAs are tied to the employee rather than the employment, so they can follow the individual if they leave their job.
  • Individuals do not qualify for an HSA if they are covered by a second healthcare plan, eligible for Medicare or are claimed as a dependent by someone else.
  • HSAs typically have a higher contribution cap and contribution amount can be adjusted at any time.
  • The contribution cap tends to be higher with FSAs than HSAs. Once an account balance reaches a certain amount, funds can be invested, making it a tax-free investment account for retirement.

FSA: Key differentiators

On the other hand, here are the key differentiators to educate your employees about for Flexible Spending Accounts:

  • There are no eligibility requirements for FSAs making it a good choice for those who don’t qualify for HSAs.
  • The funds don’t roll over from year to year but can be used on many household items.
  • Contribution amounts remain the same throughout the year with the exception of open enrollment and qualifying life events.
  • These funds are taken pre-tax, with untaxed distributions.
  • FSAs are tied to the employment, not the individual.

Helping your employees choose

With those key differences in mind, how can you help your employees choose? It all stems from communicating with them ahead of open enrollment. Here are some questions to ask about your workforce:

  1. What’s their healthcare landscape? What type of health plan are they currently enrolled in (if you offer more than one option)? Are they responsible for dependents? Those enrolled in HDHPs should lean towards HSAs.
  2. Do they visit the doctor frequently or have a lot of medical expenses in the family? If so, they’re likely on a lower deductible plan and therefore don’t qualify for HSAs, making FSAs a better choice for them.
  3. Is your workforce primarily young, healthy, and looking for lower premiums? If that’s the case, a HDHP with an HSA is a great choice for them.
  4. Do your employees have lower out of pocket needs and can afford to set aside more funds? Especially if your organization doesn’t offer a 401(k), employees may be interested in setting up an HSA for retirement savings.
  5. Do your employees have lower salaries or families with frequent predictable health expenses? If so, FSAs are a better fit.
  6. Do any employees qualify for both? Those with an HDHP and HSA can qualify for a limited purpose FSA to cover vision and dental expenses.

Use these questions to start a conversation with your employees and really listen to their answers, priorities and concerns. Together, you can make the right decision for each employee ahead of your open enrollment period.