Pre-tax savings benefits like flexible spending and health saving accounts (better known as FSAs and HSAs respectively) can help workers pay for out-of-pocket medical expenses without breaking the bank. But a lot of workers are not fully taking advantage of these
FSAs are an employer-provided benefit where employees contribute a certain amount of their paycheck to the account each pay cycle — the employee does not have to pay taxes on the money in this account, nor do they need a health plan to sign up. The money in this account must be used by either the December 31 deadline or the extended deadline of March 15, which is only provided by some employers as a grace period. By contrast, an HSA must be paired with a high-deductible
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The Employee Benefit Research Institute estimates that 48% of workers forfeited some of their FSA money in 2020, on average letting $408 go unused that year — a $4.2 billion loss overall. And while HSAs do not come with a deadline, users may be leaving money there too that could go toward bettering their health.
Both accounts can cover a wide array of services or items that employees might not expect. That's why it's vital employers consistently educate their workers on how to effectively use these benefits, says Becky Seefeldt, vice president of Benefit Resource, a pre-tax benefit account provider.
"Too many employers make the mistake of only talking about these benefits during open enrollment, and the reality is that's only a piece of the equation," says Seefeldt. "You have to stagger out communication throughout the year and provide those reminders on what is and isn't FSA and HSA eligible."
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There are few discrepancies between FSA and HSA-eligible expenses as well, making it easier for employers to group employees together and break down what their accounts can cover.
"There aren't many differences, but when it comes to an HSA, you can use it to cover your COBRA insurance premiums, while that is not permitted under an FSA," says Seefeldt. "But as far as the core medical expenses, they do both follow the same rules."
Notably, the CARES Act of March 2020 did expand eligibility, allowing Americans to use their
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"The definition of an eligible medical expense is very prescriptive, and it has to work to mitigate, treat or prevent a specific disease affecting the body," she says. "That's the challenge with these accounts."
The IRS did release new guidance, noting that if a person is suffering from a health condition like diabetes, hypertension or obesity, fitness programs could be considered eligible expenses — but this will vary depending on individual circumstances, underlines Seefeldt.
Here are 13 FSA and HSA-eligible services or items that can be paid for with these accounts — helping employees stay healthy and save money year-round.
