Flexible Spending Account (FSA) | Health Savings Account (HSA) | ||||
---|---|---|---|---|---|
Can you fund the account through pre-tax payroll deduction? | Yes | Yes | |||
Do you need a specific health insurance plan to be eligible? | No | Yes. You must be enrolled in a qualified high dollar deductible health plan. | |||
Does Uniform Coverage Rule apply? | Yes. 100% of your election is available on the first day of the plan year. | No. You may only use what you have contributed into the account. | |||
What medical expenses are eligible for reimbursement. | Unreimbursed Code 213(d) medical expenses incurred during the coverage period for self and qualified tax dependents. Cannot reimburse insurance premiums or for long-term care insurance or services. | Unreimbursed Code 213(d) medical expenses of account-holder and eligible tax dependents incurred after HSA established, including premiums for COBRA, long-term care insurance, health insurance while receiving unemployment compensation; or, if 65 or older, any health insurance except a Medicare supplement. | |||
Can you cash out balances for non-medical expenses? | No | Yes, but such amounts are taxable and subject to a 20% excise tax (certain exceptions apply). | |||
Are elections irrevocable if account is funded through pre-tax payroll deductions in a Section 125 plan? | Yes | No. Section 125 irrevocability rules do not apply to HSAs funded through a Section 125 Plan. | |||
Can a terminated employee spend down unused amounts for expenses incurred after termination? | No. Cannot use unused amounts to pay for claims incurred after the date of termination unless COBRA is elected. | Yes. HSAs are non-forfeitable and portable. Any qualified medical expense incurred after the HSA is set up is eligible to withdraw funds on a tax-free basis. | |||
Do claims need to be incurred during the current period of coverage to be eligible for reimbursement? | Yes | No. Distributions for qualifying medical expenses incurred after the HSA is established will be tax free. | |||
Must a third party process/approve the claim and is substantiation required for reimbursement? | Yes | No. HSA owner must retain records. Substantiation is not required at the time of reimbursement, but must be available in the event of an IRS audit. | |||
Does COBRA apply? | Yes. Special rule for qualifying health FSAs. Generally by plan design, COBRA only offered to participants with positive FSA balance at time of termination. | No, however COBRA may apply to employer sponsored HSA that is an ERISA plan and to HSAs sponsored by state and local govn't employers. COBRA applies to HDHP. | |||
Are there ordering rules that apply? | Yes. Health FSAs must be payers of last resort and cannot reimburse expenses that have been reimbursed elsewhere. | No. HSA-eligible individuals can't have non-HDHP coverage. Certain permitted coverage is disregarded. If enroll/are enrolled in an HSA, you are only eligible for Limited Purpose FSA. | |||
Do the funds roll over each year? | Possibly. Some plans offer a rollover of unused funds up to $500. Check your plan details. | Yes. |