Death, taxes and…and rising health care costs?
Yes, those three things may be the only certainties we have in life right now, and the latter one is something that’s increasing at a far more rapid pace than the average person’s annual income.
What’s the reason for rising healthcare costs? It’s a combination of multiple factors: One, there’s the mix of private insurers and government-sponsored programs that must stay competitive. And two, and perhaps most importantly, there’s a rise in illnesses, treatments for said illnesses, and people in general are just living much longer.
What’s more is that just because you’re covered by a health insurance plan, whether it’s offered through an employer or you purchased it yourself, you’ll likely still be paying a good chunk out-of-pocket each year for co-pays or other services that aren’t fully covered until you reach your deductible. Health care costs will obviously increase the older you get, as you’ll likely be requiring more care. The good news is that you’ve got a couple of options these days on how to pay for these out-of-pocket expenses.
Two of the most popular offerings are HSAs, or health savings accounts, and FSAs, or flexible spending accounts. Here’s a look at each one:
What You Need to Know About HSAs
These are usually offered with high-deductible insurance plans, as those covered by such will likely have to pay more out-of-pocket each year compared to if they were covered by a low-deductible plan. Like FSA accounts, you can contribute pre-tax dollars into HSA accounts. Like an FSA account, you can also use it for medical costs, glasses, prescriptions and more. But there are a couple of key differences between HSA and FSA accounts that you should take note of. Here’s a look:
Money rolls over year-to-year: Unlike FSA accounts, which must be spent at the end of each calendar year or you’ll lose any money left in them, the money in HSA accounts roll over from year to year. That means if you have a year when you don’t spend a lot of money out-of-pocket on health costs, you can just bank that for subsequent years.
Employer friendly: Employers who offer high-deductible health plans typically save quite a bit on overhead health costs compared to if they offered low-deductible plans. As a result, many will kick an annual amount of money into their employees’ HSA accounts.
Employee friendly: You can adjust the amount you put into your HSA at any time of the year. Another nice thing about HSA accounts is that you’ll still have access to the money if you were to switch jobs.
What You Need to Know About FSAs
FSAs are nice for low-deductible health care plans. Money you put into them is pre-tax dollars, and it can be used on a variety of medical and medical-related expenses. However, the money you put into an FSA is a set amount, and must be decided upon during the open enrollment period.
Unlike an HSA, the amount you contribute cannot be changed during the year. Additionally, any funds in the account must be spent on qualified expenses during the appropriate calendar year. (With HSAs, there’s a lot more flexibility in this.) Finally, any money that remains in the FSA at year’s end goes to the government, so if you don’t use it, you lose it. With this being said, there are a few notable benefits of choosing an FSA account over an HSA one. For instance:
FSA dollars can be spent on childcare expenses, a big advantage for working parents.
You’re privy to the annual FSA election that you select from the start of the year. With HSAs, conversely, you’re only privy to what has been contributed to the account at the time you need to make a payment.
An additional difference between an HSA and FSA is that FSA accounts are employer-held plans, so if you were to switch jobs, you wouldn’t take the money along with you.
So, would an HSA or FSA be better for helping to manage your healthcare expenses? Both have their fare share of pros and cons, it’s up to you to decide based on your current situation.