8 Myths About HSAs and FSAs

Our recent Employee Benefit Trends Study found that in this increasingly competitive job market, employees are interested in a wide array of benefits that can help them address their overall wellness¹. Interest in financial wellness benefits, such as health savings and spending accounts, is especially high. The study found that 87% of employees say Health Savings Accounts (HSAs) are a must-have or nice-to-have benefit, and 85% say Flexible Savings Account are a must-have or nice-to-have benefit. 

HSAs² and FSAs are voluntary, tax-advantaged accounts that can provide several financial benefits for employees—and employers. Read on to learn how they can be misunderstood, as we dispel eight common myths about these products.

1. Myth: Employees don’t need a Healthcare FSA or HSA, if they have medical insurance coverage

HSAs and Healthcare FSAs are primarily used for qualified healthcare expenses. This may lead some people to think they’re unnecessary, if employees are already covered by a health insurance plan. However, these accounts offer additional benefits. For employees with a High Deductible Health Plan (HDHP), an HSA can mean more available funds for out-of-pocket expenses today, while enjoying tax-free savings growth for future healthcare expenses. 

Employees can use either type of account to pay for qualified healthcare expenses (with tax-free dollars) that a medical, dental, or vision plan might not cover, including copays, deductibles, prescription drugs, over-the-counter medications, and more.

2. Myth: The programs are too expensive to offer

In addition to providing tax savings for employees, FSAs and HSAs have financial benefits for employers as well. Because employers own FSA funds, employers can avoid paying payroll taxes on employees’ contributions. (Employees can't take an FSA with them if they leave the employer.)

Also, when employees opt for a lower-premium HDHP to qualify for an HSA, that helps reduce your business expenses. You can also choose to make tax-deductible contributions to employees’ HSAs.

Bonus: With HSAs, employees will have a tangible financial benefit they can use now or allow their savings to grow tax-free for use later. Everyone wins.

3. Myth: Employees lose their HSA benefit, if they don’t use the funds

HSAs are different than Healthcare FSAs because HSAs are actual financial accounts. An employee owns their HSA and the funds in it; it is their money to use when they need to, and the money in their account will remain there until they are ready to use the funds. In fact, one of the appealing aspects of HSA funds is that the money can be saved and invested for the future. MetLife’s HSA offering has robust investment options for employees. Talk to your account representative to learn more.

4. Myth: An HSA is only for employees who have serious medical expenses

While employees must be enrolled in an HDHP to open or contribute to an HSA, the HSA funds can typically be used tax- and penalty-free for any type of qualified healthcare expense..

However, employees may want to open and fund an HSA, even if they don’t expect to have any upcoming medical expenses. Why? With an HSA, employees enjoy a triple tax advantage: Contributions are tax-free, and the money can be invested and grow tax-free. Withdrawals are also tax-free when the money is used to pay for qualified medical expenses.

5. Myth: An FSA can only be used to cover healthcare costs

While it's true that a Healthcare FSA can only be used for qualifying healthcare expenses, there are other tax-advantaged FSAs that cover different qualifying expenses:

• A Dependent Care FSA (DC-FSA) may be especially helpful for families who have children under 13 years old or older dependents who need professional care. Qualifying DC-FSA expenses include summer day camps, after school care, and adult day care facilities.
• A Limited Purpose Healthcare FSA (LP-FSA) is similar to a Healthcare FSA, but can only be used for qualifying vision, dental, and preventive care expenses.

6. Myth: Employees can’t have an FSA and an HSA at the same time

It’s true that an employee can’t contribute to both a Healthcare FSA and an HSA during the same year, per IRS regulations. However, employees may wind up having both types of accounts at the same time, if they’ve previously opened an HSA and later enroll in a Healthcare FSA. And they can continue to make deductions from an HSA even when they are unable to contribute to it.

Also, employees can contribute to an HSA and be enrolled in a LP-FSA and/or DC-FSA at the same time (see #5). They cannot, however, be enrolled in both a Healthcare FSA and an LP-FSA at the same time.

7. Myth: HSA and FSA funds must be used that calendar year or during working years

One important distinction between these accounts is that for any FSA, employees must enroll during open enrollment and determine their contribution level at the time of enrollment for the following year. These elections can’t be changed mid-year, unless they experience a qualifying life event, such as a change in marital status or number of dependents.

On the other hand, an HSA is more flexible when it comes to enrolling and funding. An HSA can be opened at any time of the year (subject to meeting eligibility conditions) and employees can change their contribution amount at any time. Additionally, contributions for the calendar year can be made up until the tax filing deadline for that year, typically April 15. Make sure employees understand how these accounts are different.

8. Myth: Employees’ families won’t benefit from FSAs and HSAs

Employees can also use their Healthcare FSA, LP-FSA or HSA funds for qualifying healthcare expenses incurred by their spouse and dependents. Also, a DC-FSA is an option that employees can use to cover costs related to dependent family members (see #5). And an employee can name a beneficiary for his or her HSA, to whom the proceeds will pass upon the employee’s death.

How can you support your employees' financial wellness?

It’s no myth that employees are looking for ways to boost their overall wellness, and employers have an opportunity to make a positive impact. Download our Employee Benefit Trends Study for insights into how to address low job satisfaction rates and meet expectations of workers from various generations, races, gender identities, and industries.