Account ownership and contributions. Believe it or not, employees who are already enrolled in a tax-advantaged health care account may not even know which plan they are enrolled in. In fact, 65% of employees believe that an FSA and HSA are the same thing. Help employees understand key differences between the two accounts, including:

Account ownership. An HSA is owned by the employee and all funds belong to the employee, even if they change jobs or retire. An FSA is owned by the employer and unused funds will be forfeited back to the employer if an employee quits or retires (with the exception of any COBRA extension, if applicable).
Both employees and employers can contribute to an FSA or an HSA. FSA contributions are made with pre-tax payroll contributions and the total amount that an employee elects to contribute is available from day one. HSA contributions are also considered pre-tax, but they can be made via automatic payroll contributions or via contributions throughout the year. Also be sure to communicate the contribution limits for each type of account. For 2024, HSA contribution maximums will increase to an all-time high of $4,150 if you participate in the health plan as an individual, and $8,300 if you participate in the health plan as a two-person or family. This is more than a 7% increase from 2023 contribution limits. While 2024 FSA limits have not yet been announced, Mercer is predicting a more than 5% increase to $3,200. Remind employees that they can change their HSA contribution amount at any time throughout the year, and even if they open an account and choose to not fund initially, they can still incur eligible expenses and later contribute to the account and pay themselves back to receive the tax benefit.

Savings potential. Both FSAs and HSAs allow employees to reduce their taxable income by contributing pre-tax payroll dollars to pay for eligible health care expenses. It's estimated that employees can save up to 30%, depending on their tax bracket. When it comes to savings potential, a key differentiator for HSAs is the ability to save money for health care expenses in retirement and to invest a portion of unused funds. To help employees plan their contributions and estimate their savings potential, consider directing them to free tools like an FSA calculator, and HSA Style Finder to assess which type of HSA user they are, and HSA calculators that illustrate tax savings potential and future value of the account.

Instant Insights /

HSA vs FSA: Help employees find the best fit during open enrollment

More From HR Executive

Related Stories

Recommended For You