Open enrollment season has arrived. It’s that time of year when employees have the opportunity to select benefits that will shape their financial future. In today’s economic landscape, marked by record-high inflation, the significance of financial and healthcare benefits cannot be overstated. Many employees are feeling the pinch as out-of-pocket healthcare costs rise. They face increasing financial burdens.
As employers, you have a crucial role in helping your workforce make informed choices during open enrollment. In your arsenal, you have two powerful tools: the HSA and the FSA.
Understanding these options can significantly impact your employees’ financial well-being and satisfaction. Here, we’ll explore what an HSA and an FSA are, how they differ, and how you can assist employees in selecting the benefits that best suit their needs. For more information, you can contact us at Launchways.
What Is an HSA?
A Health Savings Account, or HSA, is an employee-owned account where all funds belong to the employee. The critical point is that even if employees change jobs or retire, the HSA and its funds remain in their possession.
Both employees and employers can contribute to an HSA, and contributions are considered pre-tax. For 2024, HSA contribution limits will increase to an all-time high. This makes it an attractive option for saving money. Employees can adjust their contribution amount throughout the year. Plus, when necessary, they can forego funding the account initially and choose to contribute later.
One of the distinguishing features of an HSA is its potential for saving money for healthcare expenses in retirement. Additionally, employees can invest a portion of their unused HSA funds. This makes it an attractive option for those looking to maximize their savings and investments.
What Is an FSA?
A Flexible Spending Account, or FSA, differs in some key ways. The employer owns an FSA. Any unused funds will be forfeited back to the employer if an employee quits or retires. This can be a significant drawback compared to the HSA, which allows employees to keep their funds even after they leave their jobs.
Both employees and employers can contribute to an FSA. Contributions are made through pre-tax payroll deductions. FSA contribution limits typically have a lower cap compared to HSAs.
Helping Employees Choose the Best Benefits
As an employer, you can play a crucial role in guiding employees through the open enrollment process. Here are some key considerations to help employees make informed decisions:
- Account Ownership and Contributions: Many employees may not even know which type of account they are enrolled in. Help them understand the key differences.
- Savings Potential: Both FSAs and HSAs allow employees to reduce their taxable income. They do this by contributing pre-tax dollars to pay for eligible healthcare expenses. Highlight the savings potential of both accounts.
- Expanded Eligibility Rules: Help employees understand the eligibility rules for FSAs and HSAs. Ensure they are aware that many wellness items and everyday expenses can be purchased with tax-free funds. Encourage employees to think beyond traditional healthcare expenses. They can use their accounts for items like over-the-counter medication and high-tech health devices.
- Deadline or Not: Clearly explain the crucial difference between an FSA and an HSA when it comes to the deadline for spending. FSAs have an annual deadline, while HSA funds can roll over from year to year.
Open enrollment allows employees to make choices that impact their financial well-being. As an employer, your role is to provide clear information and guidance. You can empower your employees to make informed decisions that will benefit them throughout the coming year.
By understanding the differences between HSAs and FSAs, you can help employees find the right fit. One of the critical distinctions between an HSA and an FSA is the rollover of funds.
While HSA funds can roll over from year to year, ensuring that employees don’t lose their savings, FSA funds have a deadline for spending. This deadline is December 31 for most organizations, although it can vary based on the plan year.
Furthermore, it’s essential to clearly communicate any FSA deadline extensions. A partial rollover of unused funds, a grace period extending 2.5 months after the plan year ends, or a run-out period can make a difference.
To further ensure a smooth and satisfactory open enrollment process, contact Launchways. We offer solutions.