FSA vs. HSA: What to Know About Accounts That Pay Medical Expenses

In some cases, transferring funds from one HSA to another can take weeks, during which the original account continues to charge a monthly fee, the report states. It also cited consumer complaints about funds lost during transfers from one bank to another.

Research firm Morningstar evaluated 10 HSA plans in October using criteria including fees, interest on savings and investment options. (The company only looked at accounts available directly to individuals, rather than those offered through employers, so details may vary.) Fidelity Investments was the only provider with a “high” overall rating for both spending and investing. Its HSA offered an interest rate on savings well above 2%, while its competitors paid less than 1%.

“That’s a big shortcoming,” said Greg Carlson, senior research analyst at Morningstar.

Here are some questions and answers about healthcare bills:

Sara Taylor, senior director of employee expense accounts at benefits consultancy WTW, suggests taking a close look at your past medical expenses before deciding how much to contribute to your FSA “It’s hard to do for some people,” she said. But looking at your “explanation of benefits” from last year — the forms that describe what treatments you had and what share of the costs you owe — can help you come up with a reasonable number. Was last year an anomaly because you had major surgery? In that case, you may want to contribute a smaller amount. Many employers offer online tools to help you come up with an estimate.

It also helps to know what you can spend your FSA money on. That way, if you have a balance at the end of the year, you can use the money to buy eligible over-the-counter items like pain relievers and even sunscreen. A helpful resource is the FSA Store, which includes an alphabetical online list of eligible and ineligible items.

No one wants to give up funds, but workers can still come out ahead compared to not contributing at all because of the tax benefits of FSA contributions, Spiegel said. Let’s say a hypothetical worker with a 30% marginal tax rate (including federal, state, payroll, and local taxes) contributes $1,500 to an FSA, realizing $450 in tax savings. If the worker loses less than $450 back to the employer, the worker will still have benefited from participation.