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What Is an FSA?

 

How FSAs Work

A Flexible Spending Account, or FSA*, is an employer-sponsored health care account that allows employees to decide how their health care dollars are spent. Employees can set aside a part of their earnings on a pre-tax basis to pay for qualified medical expenses. An FSA can be used along with any traditional health insurance plan and has tax advantages. A Health Care Account, or HCA, is another name for an FSA. Sometimes these are called Health Care Flexible Spending Accounts (HCFSA).

Facts About FSAs

  • Earnings deducted for FSA contributions are not subject to payroll taxes.
  • There are several types of FSAs designed to cover different types of costs.
  • Medical FSAs can be used to pay for deductibles, copayments and coinsurance specified in a health plan.
  • Debit cards can be used with certain FSA plans.
  • Your employer owns FSAs. You can’t take your FSA account with you if you change jobs or retire.
  • Generally, FSA funds do not roll over annually. Use it or lose it. In some cases, an amount may be allowed to roll over to the next year.
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What is a CDHP?

A Consumer Directed Health Plan (CDHP) is a type of health plan that gives you more control of your health care expenses. Here are a couple of examples of CDHPs:

  • A High Deductible Health Plan (HDHP) paired with a Health Savings Account (HSA*) is one type of CDHP.  
  • A standard medical insurance plan with an FSA is another type of CDHP.

In both cases, you can use the pre-tax dollars in your health care account to pay for a wide range of qualified health care costs. 

Comparing an HSA to an FSA

  • To establish an account and make contributions, those wishing to use an HSA must be enrolled in an HDHP**.
  • FSAs can be used with almost any traditional employer-sponsored health insurance plan.
  • Both FSAs and HSAs are used to pay for qualified medical expenses with tax-free dollars.
  • FSAs are "pre-funded" by the employer, meaning the employee has almost immediate access to the full amount of funds they contribute to during the year.

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* Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs), including products under our BlueEdge product portfolio have tax and legal ramifications. Blue Cross and Blue Shield of Montana does not provide legal or tax advice, and nothing herein should be construed as legal or tax advice. These materials, and any tax-related statements in them, are not intended or written to be used, and cannot be used or relied on, for the purpose of avoiding tax penalties. Tax-related statements, if any, may have been written in connection with the promotion or marketing of the transaction(s) or matter(s) addressed by these materials. You should seek advice based on your particular circumstances from an independent tax advisor, regarding the tax consequences of specific health insurance plans or products.

Health Savings Accounts (HSA) have tax and legal ramifications. Blue Cross and Blue Shield of Montana does not provide legal or tax advice, and nothing herein should be construed as legal or tax advice. These materials, and any tax-related statements in them, are not intended or written to be used, and cannot be used or relied on, for the purpose of avoiding tax penalties. Tax-related statements, if any, may have been written in connection with the promotion or marketing of the transaction(s) or matter(s) addressed by these materials. You should seek advice based on your particular circumstances from an independent tax advisor regarding the tax consequences of specific health insurance plans or products.

** For details on HSA plans, visit Understanding HSA-eligible plans from Healthcare.gov, an official website of the U.S. Centers for Medicare & Medicaid Services at https://www.healthcare.gov/high-deductible-health-plan/hdhp-hsa-work-together .