The Ins and Outs of FSAs + HSAs for People with Diabetes
Getting started with a flexible spending account or health savings account can be confusing. But, they’re also seriously beneficial when living with any form of diabetes!
In this guide, we explain what they are and how you can benefit if your employer offers them.
What is a flexible spending account?
A flexible spending account (FSA) is an employer-sponsored healthcare benefit that helps you save money on qualifying medical expenses.
With an FSA, you can choose to have a portion of your salary put into an account that can only be used to pay for certain healthcare-related costs. In 2022, the contribution limit to $2,850, as set by the IRS. FSAs allow employees to set aside a certain amount of funds each year to cover healthcare costs. For the plan year 2022, the IRS limited FSA annual contributions to $2,850. This number can change annually, as determined by the IRS.
FSA funds are pre-tax dollars deducted from your paycheck. Unlike health savings accounts (HSAs), which you contribute to incrementally from each paycheck throughout the year, FSAs essentially function like paying your employer back.
For example, if you decide to set aside $2,850 during your plan year and you are paid twice per month, then $118.75 is deducted per paycheck. With FSAs, your employer allocates the portion of your salary you chose into the FSA account. Then, that amount is deducted from your paychecks over the course of the year.
With health savings accounts, you build a balance with each paycheck—but more to come on that!
Common FSA rules
If you don’t use your FSA funds during your plan year, you may lose the money. However, some employers offer a “grace period,” allowing you to use the funds for 2.5 months into the next year—giving you more time to take advantage of your remaining FSA dollars.
- For example: if you haven’t used all of your FSA dollars by December 31, 2022, you may still be able to use them until mid-March 2023, if your employer allows it.
Some employers also offer a $570 rollover, which lets employees use their FSA balance from the previous plan year during the current one. For 2021 and 2022, Congress and the IRS approved new FSA rule changes that allowed individuals up to the maximum FSA contribution to be carried over into the next plan year, but without further legislation, this rule will not continue in 2023.
- For example: if you have $600 remaining in an FSA account at the end of 2022, you may be able to carry $570 to use in 2023.
FSAs vary by company—not all benefit plans offer this option. If your employer offers an FSA, be sure you clearly understand its rules before you enroll and decide how much money you’d like to put into your account.
What is a health savings account?
A health savings account is different than an FSA in several ways:
- What is it? An HSA is a type of savings account you put pre-tax dollars into to pay for qualifying medical expenses. Health savings accounts are set up through your employer and are attached to a qualifying banking account.
- Talk to your employer: If not set up correctly, you could end up paying taxes on your HSA—defeating the point! (If you don’t enroll in it through your employer and manually contribute funds between your accounts, those dollars are taxed.) Your HR rep should be able to help you set it up appropriately.
- How does it work? Unlike an FSA, you start at $0 and can contribute up to a certain amount. (You are building funds with pre-tax dollars instead of paying your employer back with pre-tax dollars.) Contribution limits are set by the IRS and are adjusted every year.
- Who can contribute + how much? You can only contribute to an HSA if you have a high deductible healthcare plan (HDHP). Refer to your benefits package if you’re unsure if you do! In 2022, individuals with HDHPs could set aside up to $3,650 a year, and families could set aside up to $7,300 in an HSA.
- Didn’t use it? You won’t lose it! One great advantage of HSAs is that the money carries over yearly, just like a regular savings account. You don’t have to worry about losing your funds if you don’t use them or if you switch employers and your new employer doesn’t offer an HSA. Whatever is left in the account from when you were with your former employer can still be used at any time. You just can’t contribute to it if your new employer doesn’t offer it.
- Why is building healthcare savings important? Carryover funds are especially handy if your most expensive diabetes costs, such as insulin pumps or continuous glucose monitor 90-day prescriptions, aren’t due to be filled until early in the first half of the following plan year. You don’t have to worry about a deadline to use your HSA funds!
What are the benefits of FSAs for people with diabetes?
First, remember: Most employers only offer an FSA or HSA, but if your employer offers both, you can only enroll in one plan. If you qualify for an HSA, you cannot enroll in an FSA (unless it’s a limited-purpose FSA). If you’re unsure if this pertains to you and what would be the most advantageous for your situation, the best thing you can do is refer to your benefits coordinator.
Now, let’s talk benefits! If your employer offers an FSA and you live with diabetes, here are some of the key benefits to keep in mind:
- You can use your FSA funds right away after you enroll. This type of account offers a lot of comfort because you know your funds are already there and can be used! For example, if you have an expensive prescription to fill at the beginning of the year or a deductible to meet, you have access to your healthcare dollars right away.
- What can you pay for with an FSA? Standard FSAs, which are what most employers offer, cover the following expenses: medical, dental, vision, and pharmacy. Qualifying FSA expenses aren’t necessarily the same as what is covered by your health insurance. For example, if you see a doctor out of network with your insurance for a wellness exam, you may still be able to use your FSA funds if it’s a qualifying medical service. Likewise, you can use FSA money to pay co-pays at your doctor’s visits and for over-the-counter medications and things like sunscreen.
- Note: Limited purpose FSAs only cover dental and vision expenses. These FSAs are known as “HSA-compatible” plans because they are the only type of FSA account that you can use with an HSA. In some cases (if offered and you qualify), having an HSA and a limited-purpose FSA can make sense.
What are the benefits of HSAs for people with diabetes?
HSAs come with considerable benefits. Here’s what you should know:
- What can I pay for with an HSA? HSAs also cover eligible medical, dental, vision and pharmacy expenses.
- HSAs are helpful with long-term budgeting and medical planning. If you have diabetes, a high deductible healthcare plan and an HSA, you may not find yourself with surplus funds to roll over from year to year, but when it does happen, this is extremely helpful for long-term health planning! Those years of rollover add up over time and can provide comfort when planning for a family, anticipating medical costs or procedures or even considering retirement.
- Qualifying expenses: Like FSAs, qualifying HSA expenses might not be the same as what your insurance covers.
- FSAs and HSAs are helpful with healthcare budgeting. If you’ve never had one before, using either of these accounts can help ensure you have funds set aside for ongoing medical services or prescriptions!
When available, HSAs + FSAs are helpful for people with diabetes!
The bottom line is: HSAs and FSAs are helpful for long-term health management and financial planning.
This guide touches the surface of HSAs and FSAs. They can be beneficial tools offered by your employer. If you’re just starting with them and find them confusing, refer to your HR representative or benefits coordinator. They should be able to help answer any questions that arise with your plan.
If you live with diabetes, it’s important to consider enrolling in one of these accounts when available. They can save you money through pre-tax dollars and help you manage your expenses more efficiently throughout the year—softening one hurdle of diabetes management.