Why FSA Instead of HSA?

[Franz Kafka]

Here's a newby question. Why would anyone set up an FSA instead of HSA? Both can be contributed either by the employer or the employee (or mixed) but with FSA the employee must use it or "lose it" at the end of the plan year. If it's entirely/mostly funded by the employer, he/she would get the remainder back but wouldn't that actually "encourage" the employees to max out the annual allowance? I understand FSA can be used (pre-tax) for dependent care but beside that what's the benefit over HSA? (For that matter what's the benefit of HRA over HSA?)

 

[somarco]

FSA is a salary reduction. Unused benefit balances accrue to the employer at years end.

Using an FSA reduces payroll which in turn reduces FICA, FUTA, SUTA and WC premiums.

The employer loses those benefits with an HSA.

HRA can be but is usually not pre-funded while an HSA (at least in the employer setting) is usually pre-funded.

HSA-HRA-FSA Insurance Guide and Comparison Chart | Bene-Care Agency: Serving Rochester, Buffalo, Syracuse, and all of Upstate NY | Bene-Care Agency - Rochester, NY

 

[ABC]

The FSA has tax advantages with a traditional co pay plan and the child care benefit.

So if you have a decision maker that does not want to look at consumer driven plans then this is really your only option for some type of tax breaks. Since this options has been around for some time a lot of controllers will fee very comfortable with it.

 

[Franz Kafka]

FSA is a salary reduction. Unused benefit balances accrue to the employer at years end.

Using an FSA reduces payroll which in turn reduces FICA, FUTA, SUTA and WC premiums.

The employer loses those benefits with an HSA.

HRA can be but is usually not pre-funded while an HSA (at least in the employer setting) is usually pre-funded.

Thank you. Isn't HSA contribution pre-taxed also?

The FSA has tax advantages with a traditional co pay plan and the child care benefit.

So if you have a decision maker that does not want to look at consumer driven plans then this is really your only option for some type of tax breaks. Since this options has been around for some time a lot of controllers will fee very comfortable with it.

So the employee can use FSA to pay for co-pays, deductibles and co-insurance?

 

[somarco]

You can do an employer HSA contribution that is "kind of" pre-taxed, but not the same as an FSA which is a salary reduction.

ER HSA contrib shows up on the W2 as other income and becomes a deduction on the 1040. Still subject to FICA, FUTA, SUTA, WC, etc so no real break to the employer.

FSA can reimburse for OOP on medical, dental , vision. Also can be used for child care & commuting expenses.

 

[Franz Kafka]

ER HSA contrib shows up on the W2 as other income and becomes a deduction on the 1040. Still subject to FICA, FUTA, SUTA, WC, etc so no real break to the employer.

Thanks somarco. What if the employee contributed througha a cafeteria plan? Could the ER save on FICA that way?

 

[somarco]

If you have an HSA and an FSA the FSA must be a limited benefit plan covering only vision & dental expenses.

 

[ABC]

"So the employee can use FSA to pay for co-pays, deductibles and co-insurance?"

Yes


I thought the only way you could have both an HSA and FSA is if the FSA was for child care only?


Another issue for small groups with an FSA is the admin cost.
If you crunch the number sometimes its not worth paying for the FSA admin if you only have 3 out of 20 people taking.

What size is your group?

 

[somarco]

U.S. Treasury - HSA Frequently Asked Questions

My employer offers an FSA, can I have both an FSA and an HSA?

You can have both types of accounts, but only under certain circumstances. General Flexible Spending Arrangements (FSAs) will probably make you ineligible for an HSA. If your employer offers a “limited purpose” (limited to dental, vision or preventive care) or “post-deductible” (pay for medical expenses after the plan deductible is met) FSA, then you can still be eligible for an HSA.

 

[ABC]

U.S. Treasury - HSA Frequently Asked Questions

My employer offers an FSA, can I have both an FSA and an HSA?

You can have both types of accounts, but only under certain circumstances. General Flexible Spending Arrangements (FSAs) will probably make you ineligible for an HSA. If your employer offers a “limited purpose” (limited to dental, vision or preventive care) or “post-deductible” (pay for medical expenses after the plan deductible is met) FSA, then you can still be eligible for an HSA.

Interesting

I love how the gov. say "probably"