As open enrollment season opens, opportunities to subscribe to the various spending accounts become available, too. Multiple options exist, but a plan’s eligibility requirements and family size influence the “best” selection for you and your family. These savings accounts are not “one size fits all” but apply to different participants, with each account type offering perks and rules. To make your choice, you’ll need to understand your options. These options are a Flexible Spending Account (FSA – with or without dependents), a Health Savings Account (HSA), or a Health Reimbursement Account (HRA).
Flexible Spending Accounts – FSA & DCFSA
There are two types of FSA accounts: the most common for medical expenses and the special one for childcare expenses, a Dependent Care Flexible Spending Account (DCFSA). FSA accounts are funded from your paycheck by deducting pre-tax dollars. This helps shelter your funds from income tax. These tax-free funds are only good for the calendar year; however, there may be a short rollover period into the next year when you can use any remaining funds.
Even if you haven’t yet had a payroll deduction for FSA funds, you can use them at the beginning of the year. Your funds are accessible through a dedicated FSA debit card for payments at the point of service or used to pay your medical bills online. This card can also be entered into your online pharmacy account, and pay for all prescriptions without any claims to file. As daily money managers, we recommend implementing these strategies to capture the benefit of your FSA dollars quickly. The maximum contribution you can make into an FSA account for 2025 is $3300.
For a DCFSA, you can only use this account to reimburse child care expenses. For 2025, enrollees can deposit up to $5,000 for care expenses. Here’s a Pro Tip from your DMM: Unlike the traditional FSA account, these funds can only be reimbursed after your contributions are deducted from your payroll check, but not before.
Health Savings Account – HSA
HSA plans, while sharing similarities to FSA plans, have features that differentiate them. The key differentiator is that you must be enrolled in a high-deductible health insurance plan, which for 2025 is $1,650 for an individual and $3,300 for a family plan. The maximum out-of-pocket expense in 2025 for an individual is $8,300, while the maximum out-of-pocket expense for a family in 2025 is $16,600.
An HSA is similar to an FSA in that you receive a special debit card that helps pay for copays at the doctor’s office and prescriptions at the local pharmacy. You can also use your HSA card to pay medical bills from provider portals. These accounts are funded by the insured in two common ways. Option one, contributions are set up with pre-tax dollars from your paycheck just as an FSA for employer-sponsored plans. Alternatively, you can also fund it with money from your bank account. If you are 55 or older, you can make catch-up contributions too.
One benefit of the HSA is that these funds roll over indefinitely if the previous year’s contributions are not utilized. Over time, this allows participants to accumulate savings for future medical needs, such as big-ticket items, including surgeries, specialty prescription medications, and more. DMM Pro Tip: Retirees with HSA funds use their remaining dollars to cover costs not covered by Medicare, such as dental care and hearing aides!
Health Reimbursement Account – HRA
An HRA differs from an HSA or an FSA because it is funded solely by employer-provided dollars. This account is frequently offered to employees or retirees to offset the rising cost of healthcare. These accounts allow for an auto-reimbursement feature (set it and forget it!), so you never have to lift a finger to receive money back from recurring costs like Part D prescription plan or Medicare supplement premiums. This feature dramatically assists seniors in overcoming the confusion of the claims filing process.
At Organized Instincts, our daily money managers help you make an informed decision about health savings accounts. If managing the claims reimbursement process seems overwhelming or burdensome, send us a message to discuss how to get out of this dilemma.
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