Health Spending Accounts
Health spending accounts can work for almost anyone. The key is knowing how they work. You can use these accounts for qualified medical expenses, such as deductibles and copays.
What are health spending accounts?
Health spending accounts are used to pay for qualified medical, prescription, dental and vision expenses. The three main types of plans are:
- HSA, or health savings account
- HRA, or health reimbursement account or arrangement
- FSA, or flexible spending account
Types of health spending accounts
What's an HSA?
A health savings account, or HSA, is an account you use to pay for qualified medical, pharmacy, dental and vision expenses and save on taxes. They are paired with high-deductible health plans.
An HSA is an account to help you save for health care expenses. Instead of spending money on higher premiums, you can keep that money in an HSA to use on those expenses. The account is yours, and you'll never lose what you put in.
Compared to other health spending accounts, HSAs give you more ways to save on health care expenses, now and in the future.
According to recent estimates, a married couple retiring at age 65 will require approximately $280,000* throughout retirement to cover medical costs such as out-of-pocket prescription drug expenses and Medicare premiums. By saving money in an HSA you can prepare for your family's future health care costs and also use your HSA as a buffer to protect your other retirement accounts from out of pocket medical expenses.
* Source: Fidelity Investments, 2018
Who can open an HSA?
You must be covered by a high-deductible health plan to open an HSA. You can’t open an HSA if you’re:
- Covered by Medicare or Medicaid
- Claimed as a dependent on someone else's tax return
Is an HSA right for you?
Individuals who may benefit most from an HSA
If you're generally healthy and you want to save for future health care expenses, an HSA may be an attractive choice. Or if you're near retirement, an HSA may make sense because the money can be used to offset the costs of medical care after retirement.
Individuals who may not benefit from an HSA
If you think you might need expensive medical care in the next year and would find it hard to afford a high deductible, an HSA and high-deductible health plan might not be your best option.
Advantages of an HSA
- An HSA offers a triple-tax advantage. Your payroll contributions, interest earned (on investments) and withdrawals for qualified expenses are all tax-free.
- Once your HSA balance reaches a certain amount, you can choose to invest in a selection of investments to boost your savings. Any gains are earned tax-free.
- You own it. The money goes with you if you retire, select a new health plan or change jobs.
- Anyone can deposit money in your HSA, including you, your employer, your spouse and dependents, up to an annual limit set by the IRS. If you’re 55 or older, you can make a catch-up contribution above the annual maximum each year until you enroll in Medicare.
Using an HSA
Putting money in an HSA
You can contribute to your HSA any time of the year, up to the annual limit.
Ways to contribute include:
- Have a set amount taken out of each paycheck before taxes
- Deposit money that’s already been taxed—you can deduct it from your income on your tax return, no matter who it came from
- Your employer can put money into your HSA and save on taxes, too
- You can move money from an IRA to your HSA once—called a one-time rollover
Publication 969 from the IRS will give you more information about making contributions.
Using the money in your HSA
Depending on how your account is set up, you pay for qualified expenses:
- Using a debit card
- Paying from your HSA account
- By using your own money and submitting receipts for reimbursement
The IRS defines qualified expenses. Publication 502 has the complete list.
Members with an HSA can access it through their online member account or with our mobile app.
Resources to help HSA members get the most from their accounts
What’s an HRA?
An HRA, or health reimbursement arrangement, is a kind of health spending account provided and owned by an employer. The money in it pays for qualified expenses, like medical, pharmacy, dental and vision, as determined by the employer.
Here are other things to note about an HRA:
- Only your employer can put money in an HRA
- Your employer decides whether to let unused funds roll over from one year to the next
Who qualifies for an HRA?
Employees who get health insurance through employers who offer an HRA
Advantages of an HRA
You don’t pay taxes on money that comes from an HRA
You may be able to use your HRA to pay for many medical expenses not covered by your health insurance.
Enrolling in an HRA
You’ll find out what kind of HRA is available and how much your employer puts in it during open enrollment, or when you join the company. If you don't sign up for the HRA at that time, then you'll have to wait until the next open enrollment.
Using an HRA
The payment process for most Blue Cross members who have an HRA is easy. When you get care, we get the bill and use funds from the HRA to pay. You'll see the payment listed on your explanation of benefits, or EOB, as well as your member account.
Blue Cross members with an HRA can manage their funds through their online member account or with our mobile app.
What's an FSA?
A flexible spending account, or FSA, is an account you use to save on taxes and pay for qualified expenses. What makes them flexible? They give employers the most options when deciding on what spending accounts to offer. Other key things to know about FSAs are:
- Your employer provides and owns the account
- Only you and your employer can put money in an FSA, up to a limit set each year by the IRS
- FSAs are a “use it or lose it” account; your employer can keep funds you haven’t used by the end of the year
Who qualifies for an FSA?
Employees who get health insurance through employers who offer an FSA
What are the types of FSAs?
There are three kinds of FSAs. Your employer decides which types are available.
Health Care FSA
Also called a medical FSA, you use it to pay for qualified medical, pharmacy, dental and vision expenses as defined in Publication 502 from the IRS.
Sometimes, employers offer an account called a post-deductible health FSA. It means you must meet your plan’s deductible before using the funds in your FSA.
If you have an HSA, you may also have a post-deductible FSA. Why have both accounts?
- If you contribute the maximum amount to your HSA for the year, you can get more tax savings by contributing to your FSA, too
- Using your FSA leaves more money in your HSA for the long term
Dependent Care FSA
You can use the money in this FSA to pay qualified expenses for dependents so:
- You can work
- Someone on your plan, like your spouse, can look for work or go to school
Dependents are defined as children under age 13 and adults who can’t mentally or physically care for themselves.
Qualified expenses are defined by Publication 503 from the IRS. They include day care, elder care, preschool and day camp.
Limited Purpose FSA
If you have an HSA, you may also have this kind of FSA. You use it to pay for qualified dental and vision expenses as defined in Publication 502 from the IRS.
Why have both accounts?
- If you contribute the maximum amount to your HSA for the year, you can get more tax savings by contributing to your FSA, too
- Using your FSA for some expenses leaves more money in your HSA for the long term
Advantages of an FSA
- You don’t pay taxes on money that you put into an FSA or the money that comes from an FSA.
- You may be able to use your FSA to pay for many medical expenses not covered by your health insurance.
How to enroll in an FSA
You usually sign up for an FSA once a year during open enrollment. That’s when you:
- Estimate your expenses for upcoming year
- See if your employer is contributing any money to the FSA
- Decide on the total amount you want to put in the account
A portion of that amount is then taken out of your paycheck before taxes throughout the year and put in your FSA.
Funds left over at the end of the year go back to your employer, although they can choose to:
- Let you pay expenses from the previous year for up to two and half months into the new year
- Or, carry over up to $500 from one year to the next
Using an FSA
You pay for qualified expenses using:
- A debit or credit card
- Your own money and then submitting receipts for reimbursement
Spending your health care or limited purpose FSA
When you have a health or limited-purpose FSA, the total amount is available on the first day. For example, if your employer put in $300, and you decided to contribute $600, you have $900 to spend right away. You pay the $600 over the course of the year.
Spending your dependent care FSA
When you have a dependent care FSA, you can only access your account balance. If your employer put in $300, that’s all you have on the first day.
Blue Cross members with a HealthEquity® FSA can manage their funds through their member account.
What's an HSA?
A health savings account, or HSA, is an account you use to pay for qualified medical, pharmacy, dental and vision expenses and save on taxes. They are paired with high-deductible health plans.
An HSA is an account to help you save for health care expenses. Instead of spending money on higher premiums, you can keep that money in an HSA to use on those expenses. The account is yours, and you'll never lose what you put in.
Compared to other health spending accounts, HSAs give you more ways to save on health care expenses, now and in the future.
According to recent estimates, a married couple retiring at age 65 will require approximately $280,000* throughout retirement to cover medical costs such as out-of-pocket prescription drug expenses and Medicare premiums. By saving money in an HSA you can prepare for your family's future health care costs and also use your HSA as a buffer to protect your other retirement accounts from out of pocket medical expenses.
* Source: Fidelity Investments, 2018
Who can open an HSA?
You must be covered by a high-deductible health plan to open an HSA. You can’t open an HSA if you’re:
- Covered by Medicare or Medicaid
- Claimed as a dependent on someone else's tax return
Is an HSA right for you?
Individuals who may benefit most from an HSA
If you're generally healthy and you want to save for future health care expenses, an HSA may be an attractive choice. Or if you're near retirement, an HSA may make sense because the money can be used to offset the costs of medical care after retirement.
Individuals who may not benefit from an HSA
If you think you might need expensive medical care in the next year and would find it hard to afford a high deductible, an HSA and high-deductible health plan might not be your best option.
Advantages of an HSA
- An HSA offers a triple-tax advantage. Your payroll contributions, interest earned (on investments) and withdrawals for qualified expenses are all tax-free.
- Once your HSA balance reaches a certain amount, you can choose to invest in a selection of investments to boost your savings. Any gains are earned tax-free.
- You own it. The money goes with you if you retire, select a new health plan or change jobs.
- Anyone can deposit money in your HSA, including you, your employer, your spouse and dependents, up to an annual limit set by the IRS. If you’re 55 or older, you can make a catch-up contribution above the annual maximum each year until you enroll in Medicare.
Using an HSA
Putting money in an HSA
You can contribute to your HSA any time of the year, up to the annual limit.
Ways to contribute include:
- Have a set amount taken out of each paycheck before taxes
- Deposit money that’s already been taxed—you can deduct it from your income on your tax return, no matter who it came from
- Your employer can put money into your HSA and save on taxes, too
- You can move money from an IRA to your HSA once—called a one-time rollover
Publication 969 from the IRS will give you more information about making contributions.
Using the money in your HSA
Depending on how your account is set up, you pay for qualified expenses:
- Using a debit card
- Paying from your HSA account
- By using your own money and submitting receipts for reimbursement
The IRS defines qualified expenses. Publication 502 has the complete list.
Members with an HSA can access it through their online member account or with our mobile app.
Resources to help HSA members get the most from their accounts
What’s an HRA?
An HRA, or health reimbursement arrangement, is a kind of health spending account provided and owned by an employer. The money in it pays for qualified expenses, like medical, pharmacy, dental and vision, as determined by the employer.
Here are other things to note about an HRA:
- Only your employer can put money in an HRA
- Your employer decides whether to let unused funds roll over from one year to the next
Who qualifies for an HRA?
Employees who get health insurance through employers who offer an HRA
Advantages of an HRA
You don’t pay taxes on money that comes from an HRA
You may be able to use your HRA to pay for many medical expenses not covered by your health insurance.
Enrolling in an HRA
You’ll find out what kind of HRA is available and how much your employer puts in it during open enrollment, or when you join the company. If you don't sign up for the HRA at that time, then you'll have to wait until the next open enrollment.
Using an HRA
The payment process for most Blue Cross members who have an HRA is easy. When you get care, we get the bill and use funds from the HRA to pay. You'll see the payment listed on your explanation of benefits, or EOB, as well as your member account.
Blue Cross members with an HRA can manage their funds through their online member account or with our mobile app.
What's an FSA?
A flexible spending account, or FSA, is an account you use to save on taxes and pay for qualified expenses. What makes them flexible? They give employers the most options when deciding on what spending accounts to offer. Other key things to know about FSAs are:
- Your employer provides and owns the account
- Only you and your employer can put money in an FSA, up to a limit set each year by the IRS
- FSAs are a “use it or lose it” account; your employer can keep funds you haven’t used by the end of the year
Who qualifies for an FSA?
Employees who get health insurance through employers who offer an FSA
What are the types of FSAs?
There are three kinds of FSAs. Your employer decides which types are available.
Health Care FSA
Also called a medical FSA, you use it to pay for qualified medical, pharmacy, dental and vision expenses as defined in Publication 502 from the IRS.
Sometimes, employers offer an account called a post-deductible health FSA. It means you must meet your plan’s deductible before using the funds in your FSA.
If you have an HSA, you may also have a post-deductible FSA. Why have both accounts?
- If you contribute the maximum amount to your HSA for the year, you can get more tax savings by contributing to your FSA, too
- Using your FSA leaves more money in your HSA for the long term
Dependent Care FSA
You can use the money in this FSA to pay qualified expenses for dependents so:
- You can work
- Someone on your plan, like your spouse, can look for work or go to school
Dependents are defined as children under age 13 and adults who can’t mentally or physically care for themselves.
Qualified expenses are defined by Publication 503 from the IRS. They include day care, elder care, preschool and day camp.
Limited Purpose FSA
If you have an HSA, you may also have this kind of FSA. You use it to pay for qualified dental and vision expenses as defined in Publication 502 from the IRS.
Why have both accounts?
- If you contribute the maximum amount to your HSA for the year, you can get more tax savings by contributing to your FSA, too
- Using your FSA for some expenses leaves more money in your HSA for the long term
Advantages of an FSA
- You don’t pay taxes on money that you put into an FSA or the money that comes from an FSA.
- You may be able to use your FSA to pay for many medical expenses not covered by your health insurance.
How to enroll in an FSA
You usually sign up for an FSA once a year during open enrollment. That’s when you:
- Estimate your expenses for upcoming year
- See if your employer is contributing any money to the FSA
- Decide on the total amount you want to put in the account
A portion of that amount is then taken out of your paycheck before taxes throughout the year and put in your FSA.
Funds left over at the end of the year go back to your employer, although they can choose to:
- Let you pay expenses from the previous year for up to two and half months into the new year
- Or, carry over up to $500 from one year to the next
Using an FSA
You pay for qualified expenses using:
- A debit or credit card
- Your own money and then submitting receipts for reimbursement
Spending your health care or limited purpose FSA
When you have a health or limited-purpose FSA, the total amount is available on the first day. For example, if your employer put in $300, and you decided to contribute $600, you have $900 to spend right away. You pay the $600 over the course of the year.
Spending your dependent care FSA
When you have a dependent care FSA, you can only access your account balance. If your employer put in $300, that’s all you have on the first day.
Blue Cross members with a HealthEquity® FSA can manage their funds through their member account.