Healthcare accounts allow individuals to financially invest directly in their own wellness. Proper use of these programs can provide significant savings regarding medical products and services. Unfortunately, despite being enrolled in these programs, many are not aware of the full range of benefits that come with their account. Knowing the benefits and limitations of your healthcare account can help you make more informed decisions about your care and may facilitate access to a wider range of medical products, including beneficial supplements.
The Importance of Knowing Your Benefits
The two most common types of consumer-directed healthcare accounts are Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs). Depending on the account you are enrolled in, there are certain benefits and drawbacks. Being familiar with these elements is critical, as ignorance of the specifics of your plan may cause you to miss out on substantial money-saving opportunities and limit your access to useful supplements.
What is a Healthcare Account?
Perhaps the greatest benefit of both FSAs and HSAs is that they allow participants to contribute a portion of their pre-tax income. The invested funds are deducted from an individual’s total earnings, meaning that contributions reduce the individual’s taxable income for the year. This can provide notable savings come tax season.
Healthcare accounts may be used for various medical expenses including deductibles, co-payments, and certain medications. Those who have an FSA or HSA can use their funds towards a wide range of health-related expenses providing they follow the appropriate protocol. There may however be limitations depending on the plan. More information about the specifics of a plan can be acquired by speaking with a benefits administrator at your healthcare institution.
Defining the Differences of Healthcare Accounts
Mostly, FSAs and HSAs provide similar benefits. However, the structure of each account has some notable differences.
Flexible Spending Accounts (FSA)
Flexible spending accounts are put in place by employers. These policies allow employees to set aside a portion of their pre-tax earnings, with a limit of $2,750 per employee as of 2020, to be spent on medical products and services. Employers may also make contributions. This is highly effective as contributions made by the employer do not reduce the amount the employee may contribute towards the $2,750 limit.
The major drawback of an FSA is that most plans require all contributions to be used within the tax year. However, depending on the plan established by the employer, one of two options will be available: 1) A portion of the year’s contributions may be rolled over into the next year or 2) The policy may have a grace period of two-and-a-half months, ending on March 15, during which plan holders can spend any excess funds from the previous year.
Regardless of which option is offered by the employer, it is important that the plan holder budgets properly to avoid potential loss of funds due to over-contribution and/or lack of use.
Health Savings Account (HSA)
The primary difference between an FSA and a health savings account (HSA) is that an HSA acts more like a traditional savings account. Unlike an FSA where funds are removed at the end of the year, money placed into an HSA is not removed annually and may even earn interest.
All contributions to an interest made by an HSA account are entirely tax deductible. However, any contributions that exceed the established limit on the account will incur a 6% tax and are not considered tax deductible. Any distributions from an HSA that are not made towards medical expenses will incur a 20% tax penalty and be subject to income tax.
In 2020, individual contributions to an HSA have a limit of $3,550 while families can contribute up to $7,100. But individuals who will be 55 by the end of the tax year may contribute an additional $1,000 without penalty.
HSAs are only available to individuals or families that fit the following IRS guidelines: the individual has no other health coverage, is not enrolled in Medicare, is not reported as a dependent on someone else’s tax return and has already qualified for a High Deductible Health Plan (HDHP). An HSA-eligible HDHP requires that the out-of-pocket maximum does not exceed $6,900 for individuals and $13,800 for families in 2020. Deductibles must not be lower than $1,400 for individuals or $2,800 for family coverage in 2020.
Can I Use My FSA or HSA to Purchase Supplements?
Funds from either an FSA or HSA may be used for a variety of medical goods and services Regarding supplements, there are specific guidelines for what is considered eligible for purchase or reimbursement.
The primary consideration for supplement eligibility is how relevant the substance is to the individual’s treatment and wellness. Most supplements are not designed to specifically treat, prevent, or cure disease, which is a major determining factor regarding eligibility for healthcare account spending. Because of this, many supplemental products are not automatically covered by consumer-directed healthcare accounts. However, if your doctor deems a supplement necessary for your care and provides a prescription or Letter of Medical Necessity (LMN), the product may be considered eligible for reimbursement.
Ultimately, the eligibility of a supplement depends on the individual needs of the plan holder and the professional opinion of their doctor. A patient deficient in various vitamins and minerals because of a chronic illness may use funds from their FSA or HSA to purchase a specific nutritional supplement. You can get more information about the specific supplements covered by your plan by speaking with a benefits administrator at your healthcare institution.
Relevant Changes to Healthcare Accounts
Until recently, FSAs and HSAs could not be used to purchase over-the-counter products without a prescription or LMN. However, in response to the development of COVID-19, the CARES act, which was signed into law on March 27, 2020, has made several notable changes to the healthcare system. Under the CARES act, funds within consumer healthcare accounts may pay for over-the-counter medications without a prescription. The law also allows funds to apply to menstrual care products. The intent being to increase access to medications and supplies required for quarantine and social distancing.
With these changes, many items not previously included in FSAs and HSAs are now eligible for reimbursement. An updated list of these products can be found at the FSA Store and HSA store. It is important to note that even if an item is not listed it may still be eligible if you acquire an LMN from your doctor.
Healthcare Accounts Help You Get the Supplements (and Care) You Need
Being familiar with and taking full advantage of the many benefits that come with your healthcare account, be it an FSA or HSA, can improve your healthcare experience and overall wellness. One of the most overlooked benefits of these programs is accessibility to supplements. Recent changes to healthcare accounts now allow plan holders to use their funds to purchase a wider range of over-the-counter medications and supplements. Even if a supplemental product is not listed as an eligible purchase, participants may still be reimbursed if their doctor provides a Letter of Medical Necessity for the product. If you are seeking supplements, be sure to use your healthcare account to its full potential.