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Understanding HSA and FSA Variances
Health Savings Accounts (HSA) and Flexible Spending Accounts (FSA) are two distinct and separate plans. It is important before depositing your funds into either that you understand what variances exist and how HSA FSA changes in 2011 may impact you financially.
Those who maintain an HSA must have an existing medical plan that contains a high deductible for services. HSAs may be set up by the individual and are funded with after-tax dollars. HSAs may be funded by the individual, an employer or by a family member who is covered under the plan. Withdrawals that are not used for qualified medical expenses (including premiums in the event you are collecting unemployment or qualify for Medicare) are subject to taxes.
FSAs are set up by an employer; deposits are made by the employee but controlled by the employer. There is a maximum cap of $5,000, allowed most employers or custodians, annually allowed to be deposited. An FSA does not require the participant to carry any other form of medical coverage. In the event the funds are not used, the funds belong to the employer. FSAs cannot be used to pay insurance premiums under any circumstances.
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Changes to HSA FSA Under Health Care Reform Act
Effective January 1, there were HSA FSA changes in 2011 that impact holders of both types of accounts. Generally, these changes required users of these accounts to provide additional documentation in order to use the funds in their accounts. The changes to the documentation requirements to satisfy the Internal Revenue Service has changed and some of the covered expenses now require additional documentation to support claims to withdraw funds. These changes were made in response to the Affordable Health Care for America Act signed into law in 2010.
Prior to the health care reform changes, over the counter medications such as antacids, sleeping aids, allergy medications and pain relievers were covered under HSA and FSA rules. Under the new rules, many of these will now require a prescription. Since many HSA and FSA accounts offer a debit card for these expenses, cards were either reissued (or reprogrammed) to reflect these new changes. Additionally, the documentation needed for reimbursing these expenses include either a copy of the prescription with a copy of the receipt or a copy of the receipt with the prescription medication listed on it (typically provided by pharmacies).
Some items will also require additional verification from a physician known as "a letter of necessaity". There have been no changes in the rules as they apply to these items.
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How Changes to FSA HSA in 2011 Impact You
Depending on whether you have an FSA or HSA your impact will be primarily felt when purchasing items that were primarily available over the counter. In some cases, owners of HSAs may consider rolling HSA funds into your IRA to avoid the new rules. However, this is not an option as HSA funds and IRA funds may not be co-mingled.
One possible ption for those who have an HSA is to consider taking a lower deductible plan and opening an FSA in order to minimize the complications of the additional paperwork to withdraw funds. It is important to note however, that if an FSA is not used before the withdrawal deadline the funds are then turned over to the employer or plan administrator.
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- Health Savings Accounts (HSA) Vs Flexible Spending accounts (FSA) http://www.wealthinformatics.com/2010/10/29/hsa-fsa-hra/
- Changes are coming to a health care account near you… http://www.wealthinformatics.com/2010/09/22/fsa-hsa-changes-2011-guidelines/
- Star of Life Via Wikimedia Commons/Public Domain/Department of Transportation
- President Barack Obama Signing Health Care Reform Bill Via Wikimedia Commons/Public Domain/Pete Souza