As employers and consumers prepare for 2015, both seek opportunities to drive down costs while maintaining coverage and maximizing choices in the marketplace.
Many options are available, especially in the defined contribution healthcare model, but two forms—the Health Savings Account (HSA) and the Flexible Spending Account (FSA)—allow consumers to utilize pre-tax dollars to pay for future medical costs.
So, which is best for employees in 2015? Benefits Pro, looking to answer this question, provided a handy cheat sheet to understand HSAs and FSAs in the coming year; offering comparisons, contribution limits, and changes coming to each account. What can you expect and what’s new with your HSA or FSA?
Related: Defined Contribution Glossary
Health Savings Accounts (HSA)
A health savings account a tax-favored account that allows eligible individuals covered by a qualified High-Deductible Health Plan (HDHP) to pay for current and future qualifying medical expenses tax-free. Defined contribution healthcare dollars are commonly used to fund health savings accounts.
2015 HSA Contribution Limits
Individuals (self-only coverage) – $3,350 (up from $3,300 in 2014)
Family coverage – $6,650 (Up from $6,550 in 2014)
The annual limitation on deductions for an individual with family coverage under a high-deductible health plan will be $6,650 for 2015.
The maximum out-of-pocket employee expense will increase next year to $6,450 for single coverage from $6,350, and to $12,900, from $12,700, for family coverage.
Changes Coming in 2015
The out-of-pocket limits include deductibles, coinsurance and copays, but not premiums. But starting in 2015, prescription-drug costs must count toward the out-of-pocket maximum.
Flexible Spending Accounts/Flexible Spending Arrangements (FSAs)
A flexible spending account is an account funded with pre-tax dollars contributed by the employee, the employer or both, from which employees draw reimbursement as they incur qualified healthcare expenses. Any unused balance reverts to the employer at the end of each year or grace period. Defined contribution healthcare dollars are commonly used to fund flexible spending accounts.
2015 FSA Contribution Limits
FSA contribution limits, announced by the IRS on October 30, will increase to $2,550 (up $50 from 2014) under the Patient Protection and Affordable Care Act (PPACA)
Changes Coming in 2015
Last fall the U.S. Treasury Department issued new rules that let employers offer employees the $500 carryover. Previously, unused employee FSA contributions were forfeited to the employer at the end of the plan year or grace period, which industry insiders say were a barrier to adoption. The rule went into effect in 2014.
Both arrangements offer astounding value, and to maximize this value, employers are recommended to ‘stack’ these accounts; allowing employees to utilize their FSA to pay for predictable, qualified expenses including vision and dental while offering the HSA to allow employees to pay for medical costs such as medical equipment, long-term care services and prescription drugs.
For convenience and proper coordination of these accounts, it becomes essential to have a card with sophisticated capabilities that provide a high degree of electronic substantiation for transactions. This maximizes efficiency and employee/employer convenience. Learn more about stacking HSAs and FSAs to maximize value.
Flexible Spending Account Trends and Insights
Looking for even more information? The Healthcare Trends Institute welcomed experts Chris Byrd, Executive Vice President and Chief Operating Officer of Evolution1, and Mark Schmersahl, Vice President of BeneFLEX HR Resources to share their expert opinion on the results of the 2015 FSA Trends Study. Download a recording of this webcast here.
Download the Flexible Spending Accounts Benchmark Study here.