Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs): A Guide to Boosting Employee Engagement

Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) are valuable financial tools that help employees manage out-of-pocket healthcare costs. Despite their benefits, many employees underutilize these accounts due to a lack of understanding. By increasing awareness and engagement with HSAs and FSAs, hospitals can help their workforce better manage medical expenses, ultimately improving financial well-being and job satisfaction. This guide provides an overview of the history and characteristics of these accounts to aid HR leaders in boosting employee participation.

Understanding HSAs and FSAs

Health Savings Accounts (HSAs) were first introduced in the United States as part of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. Designed for individuals enrolled in high-deductible health plans (HDHPs), HSAs provide a tax-advantaged way to save for qualified medical expenses. Contributions to an HSA are tax-deductible, earnings grow tax-free, and withdrawals for eligible healthcare expenses are also tax-free. Additionally, unused HSA funds roll over from year to year, allowing employees to build a substantial healthcare savings fund over time. Employees can use HSA funds for a variety of medical expenses, including deductibles, prescription medications, and certain dental and vision care costs.

Flexible Spending Accounts (FSAs), on the other hand, have been available in the U.S. since the 1970s and became more widely recognized following the Revenue Act of 1978. FSAs allow employees to set aside pre-tax dollars to cover qualified medical expenses, including copayments, prescription drugs, and certain medical equipment. Unlike HSAs, FSAs do not require enrollment in a high-deductible health plan. However, one major limitation is the "use-it-or-lose-it" rule, where unused funds may not carry over from one year to the next, although some plans now offer a limited rollover option or a grace period for spending remaining funds.

Key Differences Between HSAs and FSAs

• Eligibility: HSAs are available only to individuals with a qualifying high-deductible health plan, while FSAs can be used with any type of health insurance plan.
• Rollover Rules: HSA funds roll over year to year, while FSAs typically require funds to be used within the plan year, with limited exceptions.
• Contribution Limits: Both accounts have annual contribution limits set by the IRS, which may differ and be adjusted for inflation each year.
• Ownership and Portability: HSAs are owned by the employee, meaning the account stays with them even if they change employers. FSAs, however, are typically employer-owned, and funds may be forfeited if the employee leaves the organization.

Increasing Awareness and Utilization

HR leaders can play a critical role in boosting employee engagement with HSAs and FSAs by providing clear, ongoing education about these accounts. Consider implementing the following strategies:

1. Educational Workshops: Host informational sessions during open enrollment and throughout the year to explain how HSAs and FSAs work, including the tax benefits and eligible expenses.
2. Digital Resources and Tools: Provide access to online calculators, FAQs, and decision-support tools that help employees compare their options and make informed choices.
3. Communication Campaigns: Use email newsletters, webinars, and informational flyers to regularly remind employees about the benefits of contributing to HSAs and FSAs, especially during open enrollment.

Conclusion

Incorporating Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) into employee benefits education can significantly enhance financial wellness and job satisfaction. By providing ongoing education, clear communication, and practical tools, HR leaders can empower employees to maximize these valuable resources, leading to better management of healthcare expenses and a more financially secure workforce.

Disclaimer: This blog post is for informational purposes only and does not constitute financial, legal, or medical advice. The content reflects current trends in benefits management and should not be considered as an endorsement by PeopleJoy.

Sources:

1. Internal Revenue Service. (2023). Health Savings Accounts (HSAs) Overview. Retrieved from irs.gov
2. Employee Benefit Research Institute. (2023). History and Trends in the Use of Flexible Spending Accounts. Retrieved from ebri.org
3. U.S. Department of the Treasury. (2023). The Evolution of Tax-Advantaged Health Accounts. Retrieved from treasury.gov

By fostering a deeper understanding of HSAs and FSAs, hospitals can empower employees to take control of their healthcare expenses, leading to better financial outcomes and greater employee satisfaction.