Flexible spending accounts and health savings accounts — known as FSAs and HSAs — are popular ways for employers to allow workers to set aside pretax money for health care, child care and other expenses.
The IRS loosened restrictions on these accounts to make them even more useful for families during the pandemic, but people who aren’t up to date on the changes and how FSAs and HSAs differ could be leaving money on the table.
We talked to two employee benefit specialists about what you need to know:
HSAs are savings accounts in which you set aside money, pretax, to spend on medical expenses, such as prescription medications and doctor visits. You’re allowed to contribute $3,550 a year for an individual and $7,100 for a family in 2020, and the balance carries over from one year to the next. The account is owned by the employee, which means that you will continue to have access to the account and be able to spend it on medical expenses after you move on to another job or are laid off.
FSAs can be confused with HSAs because they are often called “flexible healthcare spending accounts” but they work differently. Employees can contribute up to $2,750 pretax in a health care FSA in 2020, but most of it must be spent during the year. Many employers allow workers to roll over up to $500 in their FSA at the end of the year and may grant a grace period for filing for reimbursement for eligible expenses after the year ends. Another difference that’s particularly relevant for the thousands of workers who are newly unemployed: FSAs are owned by your employer, which means when you are laid off or leave your job, you forfeit your FSA and any remaining balance.
In most cases you will not be able to contribute to your FSA after you are laid off and any new medical expenses will not be eligible for reimbursement, though you can still seek payment for expenses that occurred before your termination. Check with your employer for exceptions to these rules — many allow employees to get reimbursed for expenses through the end of the month in which they were laid off. Employers who are required to offer COBRA coverage for health insurance after an employee leaves the company are also required to offer COBRA coverage for FSA plans. You can opt into COBRA coverage for an FSA plan — and continue to have access to its balance — even if you do not choose to continue your health plan through COBRA.
If you’ve been laid off and did not take out COBRA coverage for your FSA, the only way to use the money currently in your FSA is to seek reimbursement for medical expenses that predate your termination or the grace-period date your employer has set. Co-pays, eyeglasses, and prescription medications are popular health-care FSA expenses. Also fair game: over-the-counter medications and pharmacy products, such as first aid supplies, feminine hygiene products, vitamins, thermometers, sunscreen, and blood pressure monitors, according to FSAstore.com, a searchable list of eligible products for different types of FSA and HSA accounts.