It’s benefits season!

Written By wallet street

“Do you have thoughts on HSA vs. FSA? I think I’m going to enroll in an HSA because I can pay for therapy out of it but was wondering if you had more nuanced info I should consider?”

-Catie

I’ve never had an HSA and it’s always been a topic of mine to research that I’ve never gotten around to. So this was a great nudge!

Here is a summary of the differences:

Other important info:

  1. Pro tip: Keep your receipts! I’ve been dinged on this before where the FSA doesn’t recognize the expense and they request receipts. If you don’t have receipts, they can then count it as taxable income.

  2. You generally cannot have both FSA and HSA, except if you have an HSA and your employer offers a limited FSA (which seems to be more strict about which medical expenses qualify).

  3. Qualifying medical expenses (QME): It seemed HSA and FSA had similar QMEs, including mental health services if you have a medical condition. But things like marriage counseling don’t seem to qualify. (So I think this means that therapy qualifies if your provider lists a CPT code.) Daycare/childcare seems to not be eligible unless it’s a dependent care FSA. (They do not make these rules straightforward! Here’s the whole list per the IRS.)

  4. How to pick? NerdWallet says ”In general, healthier and younger people with few prescriptions or medical conditions are likely to do better with an HSA and HDHP, since they're not seeking frequent medical care or paying for regular medications…Even though HDHPs are some of the cheapest health plans available, the trade-off is high out-of-pocket limits — as much as $14,100 for a family in 2022…While FSAs offer less flexibility than HSAs, an FSA will still help you save money, and can be paired with any plan — if your employer offers it.”

After researching this, I think I”m going to open an HSA and remove my FSA for next year.

Bonus rant

Can I just rant about how the whole reason we have to have things like FSAs and HSAs is because health care is so outrageously expensive! Even though we are required to have health insurance, it is still TOO expensive. Why? Because health insurance doesn’t provide adequate coverage. I’m not sure if they just don’t adjust their coverage for inflation quickly enough or some other reason?

One of the huge gaps I’ve personally experienced is therapy. Do you know how hard it is to find a therapist that takes health insurance? It is a Mt Everest journey that is even more difficult because you’re already feeling like poo, which is why you’re trying to go to therapy in the first place.

I asked 2 separate therapists about this. They both shared that the health insurance companies underpay versus what therapists could charge directly. And because there’s such demand, that’s what providers start doing. I’ve also started to see this with other health care providers, like family doctors, massage therapists, and other specialists.

It compounds inequality because the rich can afford to pay out of pocket to see the best doctors, while other people have to work with what the insurance system offers. It’s a very complex issue, with many misaligned incentives, that I’m sure we could debate about for hours. So, I know this is a very simplified version of the problem…but it is something that I find incredibly frustrating.

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Disclaimer: All opinions are my own. The content on this site and on the podcast does not constitute financial, legal, accounting, tax, or investment advice.

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