The details of HSAs, HRAs and FSAs can be difficult to sort out. Which one should you opt for? What are the benefits and limitations of each one? Which ones you can use for your chiropractic care?
An HSA is a personal bank account attached to a high-deductible health plan where pre-tax dollars can be set aside. These funds can be used toward the deductible of your health plan or for other qualifying medical expenses. Similar to a 401(k) retirement account HSA dollars are contributed prior to taxes so contributions to HSAs will lower your taxable income - some people pay up to 10% less in taxes by funding their HSA each year.
Quick tip: if you contribute to your HSA account using pre-tax payroll deposits through your employer, you don’t have to pay Social Security taxes on it either.
HSAs can be funded entirely by your employer (in which case there is no tax break for you), you, family members or any combination thereof, as determined by the employer sponsoring the plan. You can only have an HSA if you are enrolled in an HSA-compatible health plan. If you don’t use all of your HSA funds in one year, it rolls over into next year. An HSA account is yours - you own it, not your employer so it goes with you wherever you go, even if you switch to a non-high deductible insurance option (though you can no longer contribute to the account). You can cash it out at any point, but will have to pay 20% tax penalty if you don’t use the cash for qualifying medical expenses.
Quick tip: the untaxed dollars in your HSA can also earn interest. You can put your HSA balance into a variety of investments (like stocks, or mutual funds) where your dollars can grow tax-free. Some people even use their HSA as a retirement savings account!
Expenses covered by HSA must qualify in order for HSA funds to be used toward them. The IRS limits how much can be contributed each year (it’s not a tax shelter!), but there are no limits to how much you can save over time. You can save and use this into retirement. You can use your HSA for anything related to your chiropractic care. This includes adjustments, nutrition counseling, in-house product purchases (such as essential oils, supplements, or rehab tools), therapeutic massage, etc. You are eligible for an HSA if you:
- Are enrolled in an HSA-compatible, high-deductible health plan
- Can't be claimed as a dependent on someone else's tax return
- Aren't covered by or already enrolled in another health care plan that isn't HSA-compatible
- Aren't enrolled in Medicare
Action Item: talk to your employer about HSA options included with the health plan they provide. If you are self-employed or your employer does not provide health insurance coverage, ask your current provider about HSA options.
VIDEO: HIGH DEDUCTIBLE HEALTH PLAN (HDHP) AND HEALTH SAVINGS ACCOUNT (HSA) BASICS
HRA – Health Reimbursement Account
A health reimbursement account is similar to an HSA but the primary difference is that it is both owned and funded entirely by the employer. Any unused funds at end of year stays in your employer’s bank account. Your employer can choose whether or not to allow any leftover funds to roll over year to year. Unlike HSAs, you can never cash these funds out.
Quick Tip: Although the HRA account is funded entirely by your employer and therefore the employee cannot contribute tax-free dollars to the account, it does not mean your deductible will be entirely funded by your employer. Some choose to only contribute a portion of the deductible, which means health care costs above that agreed reimbursement would be the employee’s responsibility.
You can, however, pair this with an FSA (see below) so you can still use tax-free money on your health expenses. HRAs are also used in conjunction with a high-deductible health plan. Since premiums for these plans are generally lower, employers “subsidize” them with HRAs. Contributions to HRAs are 100% tax deductible so it allows the employer to save money on health care costs and enjoy a tax break all while still providing options for adequate coverage. Your employer can add money to an account for you to use toward eligible expenses, or simply have you submit receipts for reimbursement. Alternatively, your employer may set up a fund for you which is debited by insurance company when billed by a healthcare provider, in which case, the patient does not spend any money out of pocket. Depending on the plan design, expenses that may be reimbursed from the HRA include things like deductibles, co-payments, co-insurance, prescription medications, vision expenses, dental expenses, and other out-of-pocket health-related expenses. One of the main differences between HSAs and HRAs is that employers get to determine what expenses that an HRA covers. All requests for reimbursement under an HRA must be substantiated. The most common means of substantiation is the EOB statement provided by your health insurance provider after a medical expense has been incurred. This will indicate what was covered by your medical insurance and what was not. You’re eligible to be reimbursed for the portion that is not covered.
Action Item: If you are thinking about opting for an HRA, be sure to find out if your chiropractic care is covered and if so, ask if there are limitations to the number of visits or length of care time. Ask about related expenses such as therapeutic massage, supplements and and exercise equipment for use with rehab exercises. If these types of expenses are not covered, it’s highly recommended (and very common) to couple an HRA with an FSA.
FSA - Flex Spending Account
A flexible spending account is not health insurance. It is an account where you can set aside pre-tax money directly from your paycheck to be used toward qualifying health-related expenses. Think of it as a special savings account that is owned by your employer but the funds are yours. This is an employer benefit, so the option of having one is entirely up to your company. You never have to pay taxes on these funds - neither the money that you contribute to your FSA or anything that is reimbursed to you for a qualifying expense. They are generally set up by your employer to take money directly out of employees’ paychecks before taxes and allocate it to an FSA. Your employer can also contribute though they are not required to. These accounts can never be cashed out - they can only be used for a qualifying expense. Qualifying expenses are determined by the IRS. This is a long list and includes not only things like deductibles and co-pays but also over-the-counter drugs, vision and dental care costs, prescription drugs, and medical equipment and supplies such as crutches or bandages. FSA funds can also be used for things like smoking cessation products, breastfeeding supplies, and chiropractic care. It can also include items covered by your health plan. You are limited to how much you can contribute to your FSA each year - in 2016 the limit is $2,550. This is “use it or lose it” money meaning that you have 90 from the end of each calendar year to submit receipts for qualifying expenses incurred during the previous year. If you leave a job where you had an FSA, you have 90 from your last day to claim your funds. All unclaimed money is relinquished to your employer who owns the account. Your employer can choose however, to allow a grace period of 2 ½ months during which to use your funds or they could allow you to carry over up to $500 into the next year. Both of these are optional and up to your employer.
Quick Tip: if you are using FSA funds to pay for your chiropractic are, be sure to let your doctor know so you can obtain a receipt with the proper codes on them for submission.
It’s important to plan carefully and not put more money in your FSA than you think you'll spend within a year on things like copayments, coinsurance, prescriptions, dental care, vision care, and other allowed health-related expenses.
Action Item: If you plan to use your FSA funds for your chiropractic care, be sure to talk to your chiropractor to determine how much care is allowed by your health insurance provider versus the treatment plan recommended by your chiropractor. This will help you to determine how much FSA money you will need.
Carney Chiropractic has many patients who use a variety of HSAs, HRAs and FSAs to pay for their treatment. All chiropractic expenses including most in-office purchases are eligible for HSA and FSA funds. HRA expense eligibility is employer-specific.The only expense that is not eligible for any of these programs is the $49 Discount Program fee (via ChiroHealthUSA).