Offset Medical Costs with a Health Savings Account or Flexible Spending Account

Here at Restoration Healthcare, we try our best to make healthcare affordable for you and your family. We believe our approach to healthcare, with its roots in functional medicine, is inherently more cost effective — especially in the long term — than what is offered by conventional medicine.

And we accomplish this in two important ways:

• Our diagnoses and treatments target the underlying causes of illness instead of chasing symptoms with medications that may be ineffective or do more harm than good.
• Our objective is to restore optimal health, which is the best way to prevent, treat, and possibly even reverse the course of very costly chronic illnesses.

To reduce your medical expenses even more, we suggest using a health savings account (HSA) and/or flexible spending account (FSA) to cover out-of-pocket expenses (those expenses not covered by insurance). With an HSA or FSA, you contribute pre-tax dollars to a special account and pay your out-of-pocket medical expenses from that account. Your medical bills are essentially reduced by the amount of money you would have paid in taxes on those contributions.

For example, suppose you contribute $3,500 to an HSA over the course of the tax year, and you use the entire amount to cover the out-of-pocket costs of copays, lab tests, prescriptions, and other treatments. Also suppose, based on your income, that you are required to pay 25 percent in state, local, and federal income taxes. Well, that $3,500 is untaxed, which saves $875 on taxes ($3,500 x 0.25 = $875). Another way to look at it is instead of paying $3,500 out of pocket for medical expenses, you only pay $2,625 ($3,500 – $875 = $2,625).

If you qualify and your employer offers a flexible spending account, you may be able to use both an HSA and FSA to save even more money. More about that later in this post.

Here’s What You Can Pay for With an HSA or FSA

You can use the funds in your health savings account (HSA) and/or flexible spending account (FSA) to pay any “qualified healthcare expenses,” which include the following:

• Co-pays and co-insurance: If your insurance requires that you pay a portion of the cost of office visits out-of-pocket, you can pay from your HSA or FSA. And since Restoration Healthcare is an approved medical provider with both HSAs and FSAs, making a payment this way is a snap.
• Out-of-pocket deductible: If your insurance requires that you pay for medical expenses up to a certain amount before insurance starts to cover expenses, you can pay from your HSA or FSA.
• Testing, treatments, and preventive medical costs: At Restoration Healthcare, you can use your HSA or FSA to pay for your patient responsibility and supplements, as well as auxiliary medical costs, such as over-the-counter prescriptions, contraceptives, and preventative tests. And best of all, there’s tax advantage for doing so.

Understanding the difference between an HSA and an FSA

Health savings accounts (HSA) and/or flexible spending accounts (FSA) both allow you to pay medical and other qualifying expenses (often including dental and vision) with tax-free dollars. In most cases, you receive a debit card tied to the account (and in some cases checks) to make payments.

The two accounts differ in the following ways:

• Management: HSA is self-managed, whereas FSA is employer sponsored. The big difference here is that an HSA goes where you go. If you leave your job or lose your job, your HSA stays with you. With an FSA, if you leave the job, you can still use any funds remaining in your account until those funds are used up or until the end of the year, but you can no longer make contributions to that FSA.
• High-Deductibility: HSA requires that you have a high-deductible health plan (HDHP), whereas FSA does not. We recommend checking with your insurance provider before opening an HSA to ensure you have an insurance policy that qualifies as an HDHP. (With an HDHP, you generally pay lower premiums but have a higher deductible, so higher out-of-pocket costs. HSAs are designed to help offset those higher out-of-pocket costs.)
• Rollovers: Unused HSA contributions roll over into the following year, whereas any unused funds in your FSA are forfeited at the end of the tax year (in other words, use it or lose it). Your employer may allow for FSA rollover, but the rollover amount tends to be capped at $500.
• Investing: HSA funds can be invested, so if you don’t spend much on out-of-pocket expenses, the balance grows tax-free, and you can withdraw from it without tax penalties when you retire. FSA funds must remain in the account and may only be used for medical expenses.
• Contributions: HSAs have higher contribution limits than do FSAs (the amount you can add to the account during the course of the year). For 2020, those limits are $2,750 for FSA (individual or family), and $3,500 (individual) or $7,000 (family) for HSA. If you are 55 years or older, you can contribute an extra $1,000 catch-up contribution to your HSA annually. (These limits change from year to year, so we recommend running a Google search to find out the limits for the current tax year.)
• Who Can Contribute: HSAs allow contributions from people other than the policyholder, such as friends, family members, or employers. This can be helpful when caring for an elderly parent or helping an older child cover a medical expense. With an FSA, you — the employee — may contribute to the account through your own pre-tax salary deduction, or your employer may make contributions if they so choose to do so.
• Penalties: With an FSA, the penalty is use it or lose it — any money remaining in the FSA at the end of the tax year is forfeited. With an HSA, any unused funds are rolled over into the following tax year. However, if you withdraw funds before the age of 65 for non-qualified expenses, you must pay income tax on that amount plus a 20 percent penalty. After the age of 65, you can withdraw without penalty, but you’re still required to pay income tax on any amounts not used for qualified expenses.
• Additional Contribution Decisions: With an HSA, you can decide how much to contribute (up to the specified maximum) over the course of the year. With an FSA, you need to decide how much to contribute during the open enrollment period, and changes can be made only in the event of a change in employment or family status.

Should I use an HSA or FSA?

That depends. Consider the following:

• If you have a high-deductible health plan, a health savings account (HSA) is generally better because the contribution limit is higher — $3,500 for an HSA versus $2,750 for a flexible spending account (FSA). In addition, you can double your HSA contribution (up to $7,000) for a couple or family, whereas the maximum contribution for an FSA is $2,750, regardless of whether you have individual or family coverage.
• If you don’t have a high-deductible health plan, you can’t use an HSA, but you can use an FSA if your employer offers it.

Can I use both an HSA and FSA?

Maybe, but usually not. If your employer offers an HSA-compatible FSA (also called a limited-purpose FSA) that is only for certain expenses, such as vision and dental, then you can contribute to both types of accounts over the tax year for additional tax savings. That assumes, of course, that you have a high-deductible health plan.

Here at Restoration Healthcare, we strongly encourage you to explore your health savings account (HSA) and/or flexible spending account (FSA) options to help offset your healthcare expenses. Check with your employer’s human resources administrator to find out more about insurance plans and FSA and HSA options.

If you’re self-employed, talk with your accountant or financial advisor to see what they recommend as the best option for you. If you decide on an HSA, ask your bank to see if it offers HSAs. If not, ask what bank they would recommend. What’s most important is that you take full advantage of these tax-savings options to maximize your savings.

And we here at Restoration Healthcare stand ready, willing, and able to help make sense of it all!