The concept of Flexible Spending Accounts (FSA) first emerged in the 1970s as a way for employees to control their medical expenditures. Pre-tax dollars funded the accounts, lowering the taxable income burden on workers. However, it wasn’t until the early 2000s that Health Savings Accounts (HSA) and Health Reimbursement Agreements (HRA) became formalized.1
Today, spending accounts cover health plan deductibles, copays, coinsurance, and dental, vison, and prescription expenses. They can also help with over-the-counter (OTC) medications and supplies, dependent care for children and elders, and other anticipated annual fees.
Spending accounts are either self-funded, employer-funded, or a combination of both, depending on the type of account. The three most common spending accounts are …
HSAs must pair with qualified high deductible health plans (QHDHP) and help employees fund their deductible and out-of-pocket costs. Sometimes, HSAs are mistakenly called health care spending accounts. They do help cover health care spending, but there is also a savings and investment feature.
Employees and/or their employer can contribute up to the annual IRS limit, which increases slightly each year. The limit for 2024 is $4,150 for individuals and $8,300 for families.2
Many HSAs come with a debit card for qualified medical expenses and members pay their claims through the member website. Meanwhile, monies in the HSA earn interest and offer an investment opportunity to save for the future. The employee owns the savings account, which is portable to other employers and qualified benefit plans.
Employees cannot couple HSAs with all spending accounts. They can, however, pair an HSA with a limited flexible spending account for dental, vision, dependent care, or commuter expenses.
Integrating FSAs into any health plan can help alleviate medical and dependent care costs. Both the employee and the employer can contribute to the FSA up to the $3,200 limit for 2024. The IRS allows up to $640 to roll over to the following year for certain qualified plans.3
As with HSAs, members manage their own medical claims through the website using pre-tax funds. However, if the FSA debit card gets used outside the preapproved network, members may need to submit receipts and other proof.
HRAs are employer funded. They minimize risk for employers with higher deductibles and increased cost sharing among employees.
The employer only incurs cost if the employee receives services and meets certain deductible amounts. The maximum funding limit for excepted benefit HRAs is $2,100 for plan years beginning in 2024.2 Highmark’s integrated solution allows HRA claims to be automatically submitted and paid to providers.
While spending accounts can exist separately across different vendors, there are efficiencies to integrating them directly with your health plan.
“Claims payment is seamless with integrated spending accounts,” says Veronica (Roni) DeLisio, Senior Product Consultant at Highmark. “There is one member website and one phone number for questions. Plus, employers can view data, load contributions, access reports, and reconcile accounts all in one place.”
Highmark has a dedicated spending account operations team to handle customer needs from implementation and onboarding to maintenance and issue resolution. “It only takes about 30 days for us to implement a spending account feature into a health plan,” continues DeLisio.
“There is a misconception that employees don’t want spending accounts or that they are too complicated and hard to administer,” adds Robert (Bob) Hornburg, Product Consultant at Highmark. “We have invested in making these benefits easy to use.”
Employees can be automatically enrolled in an HSA or HRA if the employer chooses. FSAs and commuter accounts require employees to elect the account during open enrollment. Note that an employee’s HSA may be closed if there is no activity within 90 days.
Employers can also offer Commuter Spending Accounts in addition to HSAs, FSAs, and HRAs. These accounts help pay for public transit and parking with pre-tax money, further lowering taxable income. Commuter accounts are becoming popular again as employees return to in-person work.
The newest offering on the market is the Lifestyle Spending Account (LSA). “Lifestyle spending accounts first emerged during the COVID-19 pandemic,” says DeLisio. “They can help pay for everything from home office costs to down payment on a home. Employers can also allow employees to use them for gym or club memberships, pet care, travel, education, and other life-enriching experiences.”
Today’s workers want — and expect — more from their employers. Spending accounts fulfill that demand with personalized benefits choices, lower taxable income levels, and savings for today and tomorrow.
All references to “Highmark” in this communication are references to Highmark Inc., an independent licensee of the Blue Cross Blue Shield Association, and/or to one or more of its affiliated Blue companies.
1 FSA Store. Learning Center. How We Got Here: A timeline of tax-free health care. https://fsastore.com/articles/learn-got-timeline-tax-free-healthcare.html
2 Grant Thornton. Tax Services. IRS provides 2024 HSA, HRA inflation adjustments. https://www.grantthornton.com/insights/newsletters/tax/2023/hot-topics/jun-06/irs-provides-2024-hsa-hra-inflation-adjustments
3 Kiplinger. Taxes. Tax Deductions. How Much Can You Contribute to Your HSA and FSA in 2024? https://www.kiplinger.com/taxes/irs-new-msa-hsa-and-fsa-limits
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