Health Savings Account Basics: What is an HSA? Is an HSA Right for Me?

Let’s face it—modern healthcare is complicated. And it doesn’t help that the system is riddled with acronyms and abbreviations that can cause confusion. But don’t fear—we’re here to help break things down in terms that actually make sense, so you can get the information you need to make informed decisions. We’ll start by exploring the differences of an FSA vs. HSA. We’ll cover everything from the definitions of a flexible spending account (FSA) and health savings account (HSA), to examining their differences—some of which are quite distinct and important for you to know as you consider the types of tax-advantaged accounts you may want to pursue to help pay for medical expenses.

What is an HSA? What is an FSA?

When it comes to comparing an HSA vs. an FSA, let’s start at the beginning—defining exactly what each one is.

So what is an HSA? HSA is an acronym for “health savings account.” In short, an HSA is a special type of savings account that lets you put aside pretax money to pay for qualified medical expenses now or in the future. Some of these expenses include copays or deductibles for doctor visits, prescription medications, vision care, mental health services and more. HSAs are tax advantaged and only available to those who are covered under a high-deductible health plan (HDHP).

Simply put, by allowing you to save pretax funds for qualified medical expenses, an HSA helps you keep more of your hard-earned money while lowering your overall healthcare costs. For more details on what an HSA is, along with how it works with an HDHP, visit our What is an HSA page.

Ok—so that covers the basic definition of what an HSA is. Now, let’s move on to FSAs.

So what is an FSA? FSA is an acronym for “flexible spending account.” An FSA is a special account available to those who can receive health insurance coverage through their employer and can be funded with pretax dollars and then used to pay for certain out-of-pocket healthcare costs.

While HSAs and FSAs appear similar by definition, there are some distinct differences you need to be aware of in order to make the best choice regarding which type of account is right for you. We’ll explore those differences next.

What’s the difference between an HSA and an FSA? Are they the same thing?

At first glance, HSAs and FSAs can appear to be very similar. But bottom line—they are NOT the same thing. There are many critical differences that separate health savings accounts from flexible spending accounts. We’ll lay out those differences here so you can have a clear view as to how these two accounts function.

First, let’s examine each account’s eligibility. As noted in the previous section, an HSA is an option to those who participate in an HSA-eligible high-deductible health plan (HDHP). Small business owners and those who are self-employed can also utilize HSAs, provided they are covered by a qualified HDHP. On the flipside, FSAs can only be used by employees working for an employer—those who are self-employed can’t contribute to an FSA.

Next, let’s look at how each account handles contributions. When it comes to contribution limits, for 2019, HSAs allow up to $3,500 for single coverage or up to $7,000 for family coverage—and if you’re 55 or older, you can contribute an extra $1,000 to either coverage option. For FSAs, the 2019 limit is $2,700 with no differentiation between single or family coverage. As you can see, FSA contribution limits are significantly less than HSA contribution limits.

In terms of contribution sources, HSAs and FSAs are similar, with both allowing contributions from the employer and the employee. However, HSAs also allow for contributions from essentially anyone else who would want to contribute funds to assist with your healthcare expenses—a family member, friend or otherwise. FSAs do not allow this additional contribution source.

And when it comes to contribution changes and updates, HSAs also provide much more flexibility. With an HSA, you can change your contribution amount as many times as you’d like at any point during the year. With an FSA, you’re locked into the contribution amount you chose during your open enrollment—no additional changes or updates are allowed.

HSAs and FSAs also differ in terms of account ownership and portability. With an HSA, you own the account, and you keep the account even if you leave your job, change healthcare plans or even retire—your HSA funds remain yours indefinitely to use for any qualified medical expenses. With an FSA, your employer owns the account, and the account itself is forfeited if you leave your job—meaning you lose out on any funds remaining in your FSA.

Withdrawals and accessibility are two additional points of differentiation between HSAs and FSAs. HSAs offer more flexibility in terms of withdrawals, allowing them (though they do withhold tax and include a penalty). However, if you’re retired, you can make withdrawals for any expense—not just qualified medical expenses—with no penalty. And regarding fund accessibility, with HSAs, you can only access what’s been contributed into your account. For FSAs, withdrawals aren’t allowed for any reason, though you do have accessibility to the entirety of your annual election at any time, regardless if your account is fully funded or not.

Another important difference between HSAs vs. FSAs is their rollover capability. HSA funds can be rolled over indefinitely with no penalties or limitations, while you lose any unused FSA funds at the end of each year.

And one final difference to note between HSAs and FSAs is the way they handle interest and account growth. With an HSA, you enjoy the benefit of tax-free interest and account growth. In fact, many HSAs, like Bend HSA, help you grow your financial health through investing your HSA funds much like a 401(k). The same can’t be said for FSAs, where accounts never earn interest and aren’t eligible for any other form of account growth.

HSA vs. FSA: A comparison chart

If you read through the section immediately above, you likely have a solid understanding of the differences between an HSA and an FSA. If you need additional clarification, or simply an easy-to-use HSA vs. FSA reference, check out our HSA vs. FSA comparison chart:

After comparing the differences between HSAs and FSAs side by side, you’ll see that HSAs are a better choice for just about everyone due to their flexibility, portability and overall tax savings. For more reasons why it’s time for you to take advantage of an HSA, visit our HSA FAQs.

Can you have both an HSA and FSA together in the same year?

One final question we come across quite often as it relates to HSAs and FSAs, is the question of can you have an HSA and FSA together at the same time, in the same year? While you’d think the answer would be as clear as yes or no, it’s not quite that simple.

While in general terms, you can’t maintain an HSA and FSA at the same time, there is one caveat—the “limited-purpose” or “post-deductible” flexible spending account (FSA). This limited-purpose FSA is set up specifically to be used as a complement to an HSA, and serves as an additional tax-advantaged account to use for dental, vision and post-deductible medical expenses. The annual contribution limit of a limited-purpose FSA in 2019 matches that of a traditional FSA at $2,700, and all of the other technical account details related to a limited-purpose FSA match those of a standard FSA.

So remember, the only type of FSA that can be used in conjunction with having an HSA is a limited-purpose FSA.

The acronyms used in our healthcare system seem almost endless. FSA. HSA. HRA. Since we’ve covered the differences between HSAs and FSAs above, now we’ll dive into the world of HSAs vs. HRAs. If you need a quick refresher on what an HSA is, take a minute to read our explanation in the previous section. And for more details, you can check out our What is an HSA page. In this section, we’ll focus on what exactly an HRA is, as well as break down the differences between HSAs and HRAs. We’ll also explore HRA pros and cons, and learn if you have to choose between an HSA or an HRA, or if you can have both and HSA and HRA together at the same time.

What is an HRA (health reimbursement arrangement)?

So what is an HRA? HRA is an acronym that stands for “health reimbursement arrangement.” An HRA account is solely funded—and owned—by your employer, and is designed to help you pay for qualified medical expenses not covered by your health insurance plan. HRA accounts are compatible with all types of health insurance plans—including high-deductible health plans (HDHPs) with an HSA—though the IRS enforces strict rules for individuals contributing to an HSA and also receiving HRA reimbursements. More on that later.

In its simplest form, an HRA account works like this: your employer contributes a certain amount of money to your HRA account annually for you to use for qualified medical expenses. There is no specific set contribution limit, and HRA funds are available to you at the start of each year. HRA funds are only reimbursed when a qualified medical expense is submitted. And based on your employer, HRA funds may be eligible to roll over at the end of the year.

Two final quick points to note regarding health reimbursement arrangements—one, HRAs can be combined with healthcare and dependent care flexible spending accounts (FSAs). And, two, HRA reimbursements for qualified health expenses are tax-free.

HRA vs. HSA comparison: What’s the difference?

Although HSAs and HRAs can appear to be very similar in concept, similar to HSAs vs. FSAs, they are NOT the same thing. There are a number of notable differences that separate health savings accounts from health reimbursement arrangements. We’ll lay out those differences here so you can have a clear view as to how these two accounts function.

First, let’s examine each account’s eligibility. As noted in the previous section, an HSA is an option to those who participate in an HSA-eligible high-deductible health plan (HDHP). Small business owners and those who are self-employed can also utilize HSAs, provided they are covered by a qualified HDHP. On the flipside, HRAs can only be used by employees working for an employer who offers an HRA—those who are self-employed can’t utilize an HRA.

Next, let’s look at how each account handles contributions. When it comes to contribution limits, for 2019, HSAs allow up to $3,500 for single coverage or up to $7,000 for family coverage—and if you’re 55 or older, you can contribute an extra $1,000 to either coverage option. For HRAs, there is no defined contribution limit. Rather, the limit is chosen and set by the employer offering the HRA.

In terms of contribution sources, HSAs allow contributions from the employer and the employee, as well as from essentially anyone else who would want to contribute funds to assist with your healthcare expenses—a family member, friend or otherwise. HRAs only allow for one contribution source—the employer.

And when it comes to contribution changes and updates, HSAs also provide much more flexibility. With an HSA, you can change your contribution amount as many times as you’d like at any point during the year. With an HRA, you’re locked into the contribution amount your employer chooses at the start of the year—no additional changes or updates are allowed.

HSAs and HRAs also differ in terms of account ownership and portability. With an HSA, you own the account, and you keep the account even if you leave your job, change healthcare plans or even retire—your HSA funds remain yours indefinitely to use for any qualified medical expenses. With an HRA, your employer solely owns the account, and the account itself is forfeited if you leave your job—meaning you lose out on any funds remaining in your HRA.

Withdrawals and accessibility are two additional points of differentiation between HSAs and HRAs. HSAs offer more flexibility in terms of withdrawals, allowing them (though they do withhold tax and include a penalty). However, if you’re retired, you can make withdrawals for any expense—not just qualified medical expenses—with no penalty. And regarding fund accessibility, with HSAs, you can only access what’s been contributed into your account. For HRAs, withdrawals aren’t allowed for any reason, though you do have accessibility to the entirety of your employer’s chosen funding amount at the beginning of the year.

Another important difference between HSAs vs. HRAs is their rollover capability. HSA funds can be rolled over indefinitely with no penalties or limitations. For HRAs, you may lose any unused HRA funds at the end of each year unless your employer specifically sets up an HRA account that allows rollovers.

And one final difference to note between HSAs and HRAs is the way they handle interest and account growth. With an HSA, you enjoy the benefit of tax-free interest and account growth. In fact, many HSAs, like Bend HSA, help you grow your financial health through investing your HSA funds much like a 401(k). The same can’t be said for HRAs, where accounts never earn interest and aren’t eligible for any other form of account growth or investing.

If you need a quick breakdown of an HRA vs. HSA, or simply an easy-to-use HSA vs. HRA reference, be sure to bookmark our HSA vs. HRA comparison chart:

HRA account pros and cons

If you read through the previous section on our HRA vs. HSA comparison, you’re already a step ahead in understanding the differences between HSAs and HRAs. This is important, because those differences directly relate to health reimbursement arrangement pros and cons. Let’s dig into HRA advantages, as well as HRA disadvantages.

We’ll start with HRA account pros. Because there certainly are a number of advantages that come along with an HRA.

• Flexibility–There are no fixed contribution limits, and employees don’t have to be enrolled in another healthcare plan to utilize an HRA
• Tax savings–Contributions are tax deductible for employers (though employees don’t see a direct tax benefit)
• Lower healthcare costs–An HRA helps employees pay less out of pocket for qualified medical expenses
• Active involvement in the healthcare process–Similar to HSAs, HRAs require employees to pay more attention to their healthcare spending and make smart decisions regarding their expenses

And now, we’ll switch to HRA account cons. Though there are many positive elements when it comes to health reimbursement arrangements, there are also some disadvantages and drawbacks.

• No eligibility for those who are self-employed–Since HRAs are set up, owned and solely funded by employers, self-employed individuals can’t participate in an HRA
• Contribution limitations–Employers control the amount contributed to an HRA, and the employer is the only funding source—employees and others don’t have the ability to contribute
• No account ownership or portability–Employers solely own the HRA account, meaning you lose any unused funds if you leave your job—the HRA does not travel with you like an HSA does
• Rollover limitations–Unless your employer specifically sets up an HRA to allow rollovers, you’re forced into a “use it or lose it” situation with your HRA funds each year
• No ability to earn interest or invest–Unlike an HSA, which can earn interest and be invested for greater account growth, HRAs offer no option to earn interest or invest

Can you have both an HRA and an HSA together at the same time?

The short answer is yes—you can have an HRA and HSA at the same time. However, it’s critical to note that the IRS enforces strict rules for individuals contributing to an HSA and also receiving HRA reimbursements.

For those participating in a high-deductible health plan (HDHP) and utilizing an HSA, the IRS has created four specific HRA types that are available to complement the HSA: limited-purpose HRAs, post-deductible HRAs, suspended HRAs and retirement HRAs.

Let’s go through a quick breakdown of each specific HRA type:

1. Limited-purpose HRA – This HRA account allows for reimbursement of dental, vision and preventive care costs
2. Post-deductible HRA – This HRA account allows for reimbursement of qualified medical expenses after the employee has paid the minimum allowable HDHP deductible amount (for 2019, $1,350 for individuals and $2,700 for families)
3. Suspended HRA – This HRA account allows for reimbursement of dental, vision and preventive care costs and functions similarly to a limited-purpose HRA, only with the employee electing to suspend access to HRA reimbursements prior to the start of an HRA coverage period
4. Retirement HRA – This HRA account allows for reimbursement of qualified medical expenses, only after the employee retires

Bottom line—you can have both an HRA and HSA together at the same time, but you need to understand how you’ll need to use each account to avoid issues and IRS penalties.

If you have questions on how to best leverage HSAs and HRAs for your specific circumstance, don’t hesitate to contact us today.

The acronyms continue. We’ve covered HSA vs. FSA. HSA vs. HRA. And now, we’ll transition out of the world of tax-advantaged accounts and dive into the world of health savings accounts and managed healthcare plans—HSA vs. PPO vs. HMO. We’ll start by exploring the differences of an HSA vs. PPO, along with whether or not you can use an HSA with a PPO. Then, we’ll do the same for an HSA vs. HMO. We’ll cover everything from what each acronym stands for, to examining their differences—some of which are quite distinct and important for you to understand as you consider the best path for you to take to control your healthcare costs and best manage your health savings.

HSA vs. PPO: What’s the difference? Which is better?

When it comes to comparing an HSA vs. PPO, let’s start at the beginning—defining exactly what each one is.

You may have already learned the quick ins and outs of HSAs in a previous section, but we’ll cover it again just in case—starting with what is an HSA? HSA is an acronym for “health savings account.” In short, an HSA is a special type of savings account that lets you put aside pretax money to pay for qualified medical expenses now or in the future. Some of these expenses include copays or deductibles for doctor visits, prescription medications, vision care, mental health services and more. HSAs are tax advantaged and only available to those who are covered under a high-deductible health plan (HDHP).

Simply put, by allowing you to save pretax funds for qualified medical expenses, an HSA helps you keep more of your hard-earned money while lowering your overall healthcare costs. For more details on what an HSA is, along with how it works with an HDHP, visit our What is an HSA page.

Now that we’ve covered the basic definition of what an HSA is, let’s move on to PPOs.

So what is a PPO? PPO is an acronym for “preferred provider organization.” Unlike an HSA, a PPO is not an account. Rather, a PPO is a type of managed healthcare plan that offers a network of specific healthcare providers who you can use for medical care. The “in-network” providers agree to provide care to PPO plan members at a certain rate. PPOs offer the flexibility to receive care from any provider, though charges are typically higher for out-of-network providers. PPO health insurance plans can also have higher out-of-pocket costs, monthly premiums and copays than other types of health insurance plans.

As you can see, HSAs and PPOs are distinctly different, since an HSA is a specific type of tax-advantaged account used for qualified medical expenses, while a PPO is an actual type of healthcare plan option.

Because HSAs and PPOs are so fundamentally different—an account versus an actual healthcare plan—there’s really no logical way to determine which is better. Instead, let’s explore how you can use an HSA with a PPO plan to maximize your health savings and boost your financial wellbeing. We’ll cover that next.

Can you use an HSA with a PPO?

Yes—you can use an HSA with a PPO. But not with just any PPO. Since an HSA isn’t actually a type of health insurance, HSAs provide the flexibility to be integrated with any HSA-eligible high-deductible health plan (HDHP). As long as your PPO is an HSA-eligible HDHP, you can use an HSA with the PPO without issue.

Using an HSA with an HSA-eligible PPO can be a smart option to help control your healthcare costs. Though your deductible will be higher with an HSA-eligible PPO HDHP option versus a traditional PPO option, you’ll benefit from substantially lower insurance premiums, along with tax advantages that can save you thousands of dollars each year. For most individuals and families, using an HSA with a HDHP PPO plan option ends up being a much smarter financial choice than using a traditional PPO option with no HSA.

Let’s take a look at a quick example that illustrates the cost/savings breakdown between a traditional PPO plan and an HDHP PPO plan with an HSA. Please note, this example is meant to provide a basic cost breakdown based on general numbers for family coverage—it’s not specific to any one situation or circumstance. If you’d like to see a more exact breakdown of how the numbers would stack up for you to use an HSA, get in touch and we’ll be more than happy to help.

Now, onto the example:

Again, although these numbers are meant to provide a general reference, they definitely show the power of using an HSA to take control of your healthcare costs.

HSA vs. HMO: What’s the difference? Which is better?

When it comes to comparing an HSA vs. HMO, let’s use the same method that we did for HSA vs. PPO and start at the beginning—defining exactly what each one is.

Though we’ve covered HSA basics in previous sections, we’ll touch on them again just in case you’ve come directly here—starting with explaining what is an HSA. HSA is an acronym for “health savings account.” In short, an HSA is a special type of savings account that lets you put aside pretax money to pay for qualified medical expenses now or in the future. Some of these expenses include copays or deductibles for doctor visits, prescription medications, vision care, mental health services and more. HSAs are tax advantaged and only available to those who are covered under a high-deductible health plan (HDHP).

Simply put, by allowing you to save pretax funds for qualified medical expenses, an HSA helps you keep more of your hard-earned money while lowering your overall healthcare costs. For more details on what an HSA is, along with how it works with an HDHP, visit our What is an HSA page.

Now that we’ve again covered the basic definition of what an HSA is, let’s move on to HMOs.

So what is an HMO? HMO is an acronym for “health maintenance organization.” Unlike an HSA, an HMO is not an account. Rather, an HMO is a type of managed healthcare plan that offers a very specific network of healthcare providers who you can use for medical care. To keep premiums lower than PPO plans, coverage is typically only provided when you see “in-network” providers (who agree to provide care to HMO plan members at a certain rate). If you receive care from any provider outside of your HMO network, typically, no coverage will be provided. HMOs offer low or no annual deductibles, but do usually require the use of a designated primary care physician, along with referrals from that physician for any non-emergency needs to see a specialist.

As you can see, HSAs and HMOs are distinctly different, since an HSA is a specific type of tax-advantaged account used for qualified medical expenses, while an HMO, like a PPO, is an actual type of healthcare plan option.

Because HSAs and HMOs are so fundamentally different—an account versus an actual healthcare plan—there’s really no logical way to determine which is better. Instead, let’s explore how you can use an HSA with an HMO plan to maximize your health savings and boost your financial wellbeing. We’ll cover that next.

Can you use an HSA with an HMO?

Yes—the short answer is that just like with an HSA and PPO, you can use an HSA with an HMO. But again, just like with a PPO, not with just any HMO. Since an HSA isn’t actually a type of health insurance, HSAs provide the flexibility to be integrated with any HSA-eligible high-deductible health plan (HDHP). As long as your HMO is an HSA-eligible HDHP, you can use an HSA with the HMO without issue.

Using an HSA with an HSA-qualified HDHP HMO plan can be a smart option to help control your healthcare costs. Though your deductible will be higher with an HSA-eligible HDHP HMO plan option versus a traditional HMO option, you’ll benefit from substantially lower insurance premiums, along with tax advantages that can save you thousands of dollars each year. For most individuals and families, using an HSA with a qualified HDHP HMO plan option ends up being a much smarter financial choice than using a traditional HMO option with no HSA.

Let’s take a look at a quick example that illustrates the cost/savings breakdown between a traditional HMO plan and an HDHP PPO plan with an HSA. Please note, this example is meant to provide a basic cost breakdown based on general numbers for family coverage—it’s not specific to any one situation or circumstance. If you’d like to see a more exact breakdown of how the numbers would stack up for you to use an HSA, get in touch and we’ll be more than happy to help.

Now, onto the example:

Just like with PPOs, it clear to see that taking advantage of an HSA with an HDHP HMO plan option greatly helps your healthcare costs and overall financial wellbeing. Contact us today to learn all of the benefits you’ll receive when you leverage a Bend HSA to chart your path to financial wellness.

What we at Bend HSA have come to find is that even after nearly 20 years of health savings accounts (HSAs) being in existence, many people still don’t have a clear view of what HSAs are and how they work—especially when it comes to how they can empower you to achieve better financial health. We’re here to help change that. If you haven’t yet checked out our other HSA Resources, be sure to take some time to do that. In the meantime, we’ll move forward by fact-checking which health insurance plans qualify as “HSA compatible,” as well as detailing what a high-deductible health plan (HDHP) is and how it works with an HSA. We’ll even touch on what a Section 125 cafeteria-style benefits plan is and how it works with an HSA, and finish up with a quick exploration into medical savings accounts (MSAs) vs. health savings accounts (HSAs). Let’s dive right in.

Which health insurance plans qualify as HSA compatible?

If you’ve already read through our What is a Health Savings Account (HSA) page, you’ll recall that HSAs aren’t actually a type of insurance. Rather, an HSA is a special tax-advantaged savings account where the HSA accountholder needs to have an HSA-compatible health insurance plan. Simple enough, right? But which health insurance plans qualify as HSA compatible?

Long story short, the IRS sets the rules for HSAs and what defines an HSA-compatible plan. According to those IRS rules, in order to qualify for an HSA, an accountholder must be covered by an HSA-eligible high-deductible health plan (HDHP). It’s critical to note, not all HDHPs are HSA-eligible, so be sure to check each plan’s details carefully as you explore your options.

For 2019, an HSA-eligible HDHP is defined as a high-deductible health insurance plan that has a minimum annual deductible of $1,350 for individuals, and $2,700 for those with family coverage. Total annual out-of-pocket expenses can’t be more than $6,750 for individuals, and $13,500 for families.

HSA-compatible health insurance plans can come in many forms, including preferred provider organization (PPO) plans and health maintenance organization (HMO) plans, among others. There are also certain benefit limitations associated with HSA-eligible HDHPs until you meet your deductible. Other than qualified preventive care—which you receive at no cost regardless of if you’ve met your deductible or not—no other services are covered until you meet your deductible.

An HSA-eligible HDHP also has to be used as your sole health insurance coverage. You won’t be eligible for an HSA if you’re covered by your spouse’s health insurance plan that’s not a qualified HDHP, and you’re also not eligible for an HSA if you’re claimed as a dependent on another individual’s tax return or if you’re enrolled in Medicare or other forms of health insurance.

Though it does take a bit of research to confirm a health insurance plan’s HSA compatibility—it’s worth it. HSA-compatible health insurance plans offer significant monthly savings on premiums due to the higher deductible, as well as a number of other awesome benefits that come along with leveraging an HSA. Learn more here.

What is a high-deductible health plan (HDHP) and how does it work with an HSA?

We just covered which health insurance plans qualify as HSA compatible. Now, we’ll cover a bit more of what exactly a high-deductible health plan (HDHP) is and how and HDHP works with an HSA.

As its name implies, an HDHP is simply that—a health insurance plan designed with a higher deductible than other traditional health insurance plans. Because of the higher deductibles, HDHPs offer significantly lower premiums than traditional health plans. And along with lower premiums, HSA-eligible HDHPs allow the option to utilize a health savings account (HSA).

From a numbers perspective, HDHPs have specific amounts set for both annual deductibles and annual out-of-pocket expenses. For 2019, an HDHP has a minimum annual deductible of $1,350 for individuals, and $2,700 for those with family coverage. Total annual out-of-pocket expenses can’t be more than $6,750 for individuals, and $13,500 for families.

Overall, the use of HDHPs with HSAs falls in line with the modern trend toward more consumer-driven healthcare, where you can take a more active role in your healthcare and help control your healthcare costs.

Now that we’ve covered the basics of what a HDHP is, let’s look at how an HDHP works with an HSA.

The main purpose of an HSA is to serve as a tax-advantaged account for saving funds to pay for qualified medical expenses until you reach your HDHP’s deductible. An HSA functions as a bridge between the higher deductible and the point at which your HDHP begins paying for covered expenses. HSAs can be funded by a number of sources—you, your employer or even a family member or friend. The idea is to contribute enough money into your HSA to be able to cover any medical expenses you have up to your annual deductible. Oftentimes, the premium savings you benefit from alone can be your contribution.

Once you’ve met your annual deductible, your HDHP begins performing like traditional insurance. For example, after your deductible is met, you may receive 80% coverage on medical costs until you meet your annual out-of-pocket maximum. Many HDHPs offer 100% coverage after you meet your deductible. When you’re covered at 100%, you don’t need to use your HSA—but it’s still critical to contribute to ensure that your HSA is adequately funded for the next time you need it.

Bottom line—pairing an HDHP with an HSA is an extremely powerful combination that provides you with greater flexibility and control over your healthcare spending. Using an HSA with an HDHP allows you to take full advantage of three types of tax savings, while also having a dedicated savings account to use for present and future medical expenses. Even better, health savings accounts like Bend HSA allow for account growth through interest and investment opportunities.

What is a Section 125 cafeteria-style benefits plan and how does it work with an HSA?

A cafeteria plan is an employee benefits plan administered under Section 125 of the federal tax code (hence why the plan is sometimes also referred to as a 125 plan). This type of plan allows you as an employee to pay for certain expenses with pretax income, as well as to choose the benefits you want (just like you would with food in an actual cafeteria!). If your employer offers a Section 125 cafeteria plan, a health savings account (HSA) can be an option under the cafeteria plan.

If an HSA is an option, remember, you must participate in a qualified high-deductible health plan (HDHP) in order to be eligible for an HSA. You can learn more about HDHPs and how they work with HSAs above.

With a cafeteria plan, if you enroll in an HSA-eligible HDHP and meet all other eligibility requirements, then you can set aside a portion of your pretax income into your HSA to pay for qualified medical expenses. Your employer can also contribute to your HSA. It’s important to note—there are maximum annual contribution limits set by the IRS. For 2019, HSA contribution limits are $3,500 for individuals and $7,000 for families, with a $1,000 catch-up option for those 55 or older.

Using an HSA through a cafeteria plan that allows for pretax deductions and lowers your taxable income. That reduction of taxable income may help you qualify for other income-based tax credits. And your pretax HSA contributions can even be invested and turned into income-producing, tax-deferred assets.

Participating in an HSA through a cafeteria plan can be a smart strategy for saving money and boosting your bottom line. To learn more about all of the benefits of leveraging an HSA for your financial health, click here.

Medical savings account (MSA) vs. health savings account (HSA)

We’re going to wrap up this section by exploring one last pair of acronyms—MSA vs. HSA. As we’ve done for all of our previous acronym answers, we’ll start at the beginning by defining what each actually means. And from there, we’ll look at their similarities and differences, along with their advantages and potential drawbacks.

We’ve already covered the basics of what a health savings account (HSA) is. If you need more details on HSAs, visit our What is an HSA page. For the purpose of comparing HSAs vs. MSAs, just remember—an HSA is a special type of savings account that lets you put aside pretax money to pay for qualified medical expenses now or in the future. HSAs are tax advantaged and only available to those who are covered under a high-deductible health plan (HDHP).

So what is an MSA? MSA is an acronym for “medical savings account.” MSAs are similar to HSAs in that they’re tax-advantaged accounts individuals can use to help offset healthcare costs, but differ in ways that are critical to understand as you navigate the different types of tax-advantaged accounts potentially available to you.

There are two types of medical savings accounts:

1. Archer MSA–A predecessor to modern HSAs that has been mostly phased out, but does still pop up from time to time
2. Medicare MSA–Mirroring the setup of an Archer MSA, Medicare MSAs are only available to those who are on a high-deductible Medicare Advantage Plan (Part C)

When it comes to HSAs and MSAs, there are many similarities. From a tax advantage standpoint, funds can grow in both accounts tax-free, and can also be used tax-free to pay for any qualified medical expenses. Your contributions can also reduce your taxable income—though this doesn’t apply for Medicare MSAs, since you don’t contribute to that type of account. HSAs and MSAs are also similar in the fact that they both allow for rollovers, meaning there’s no “use it or lose it” deadline applied to either type of account.

Because Archer MSAs have been mostly phased out since the late 2000s, from here on, we’ll focus on HSAs vs. Medicare MSAs.

While HSAs are available to anyone who enrolls in an HSA-eligible high-deductible health plan (HDHP), Medicare MSAs are only an option for individuals on Medicare—specifically a high-deductible Medicare Advantage Plan (Part C). This is critical to note, since after you enroll in Medicare, you can no longer contribute to an HSA.

With a high-deductible Medicare Advantage plan, you may pay zero premiums, but you’ll have higher deductibles and upfront out-of-pocket expenses. That’s where the Medicare MSA comes in to help. Your healthcare plan itself contributes funds into your MSA—you don’t/can’t contribute yourself. Those contributed MSA funds can be used to pay for qualified medical expenses until you reach your deductible. Once you reach your deductible, your plan should pay all of your Medicare-covered Part A and Part B healthcare costs.

As you can see, a Medicare MSA is really a transitional option if and when you are eligible and choose to go on Medicare, since at that point, you won’t be able to actively contribute to an HSA—you’ll only be able to use the remaining funds you have in any existing HSA.

If you have any questions on MSAs vs. HSAs or anything else HSA-related, don’t hesitate to get in touch with us. Bend HSA is here and ready to help you chart your path to streamlined healthcare spending and financial wellness.