When it's time to choose your benefits, you may have several different types of medical plans and spending accounts to pick from. It's important to know that you may not have to pick just one. Depending on your offerings and your life situation, you may be able to take advantage of two or even three types of spending accounts.
With so many types of plans and accounts to choose from, it can get complicated. Here's a list of several common plans and how you can pair them together. Each plan has its own benefits and features, so knowing how to pair them together for maximum benefits could have a big impact.
If you still have an HSA with funds from a previous health plan, you may still use it for qualified medical expenses regardless of which account you currently have - you just won't be able to contribute to it if you're not currently enrolled in an HSA-eligible plan.
Pairing an HSA and FSA
With both a health savings account (HSA) and flexible spending account (FSA), you can contribute pre-tax money into an account that you can use for qualified medical expenses. Since there are annual contribution limits for both, it can be beneficial to enroll in both so you can contribute as many pre-tax dollars if possible and reduce your taxable income. However, unlike an HSA, the FSA is a "use it or lose it" account, so consider what your expenses are likely to be before deciding to enroll.
Some employers allow an FSA grace period or rollover which means employees can spend down remaining FSA funds or rollover up to $550 into the following year.
If you enroll in an FSA at the same time you actively contribute to an HSA, you can only use the FSA for vision and dental reimbursements until the deductible is met. If you or someone you cover needs orthodontal care, glasses, or Lasik services, an FSA is a great way to use pre-tax funds to pay for those expenses without having to draw money from your HSA. At the same time, you can leverage the HSA for other qualified medical expenses or for saving your money for long-term investment growth.
However, depending on how your employer designed your plan, once your health plan deductible is met, you may be able to use the FSA for any eligible medical expenses in addition to the dental and vision expenses for the remainder of your plan year.
Pairing an HRA and FSA
A health reimbursement arrangement (HRA) is a medical spending account that is owned and entirely funded by your employer, so you do not contribute to it at all. However, you can still have an FSA and contribute pre-tax dollars to it to help pay for eligible expenses.
Some important aspects of this pairing are determined by your employer. You employer determines how much will be contributed to your HRA, which expenses are eligible for HRA reimbursement, and what the rollover rules are if you have funds in the account at the end of the year. They will also decide if you will first draw from the HRA or the FSA to pay for expenses that are covered by both accounts. As a result, contact your HR representative or Blue Cross and Blue Shield of Vermont Member Services to find out how your plan is set up.
Pairing a VEBA and FSA
A voluntary employee beneficiary association (VEBA) account is a tax-free health care savings plan that, like an HRA, is funded entirely by the employer. Like an HSA, once an employer contributes to an employee’s VEBA account, the money belongs to the employee.
Unlike an HSA, however, the account does not allow you to make your own contributions to it. Since you can't make your own contributions to the VEBA, you can fund an FSA and use it to pay for qualified medical expenses before having to withdraw from your VEBA.
By pairing a VEBA account with an FSA, you would be able to contribute your own pre-tax dollars toward health care expenses while saving their VEBA dollars for retirement or other qualified expenses.
Pairing an HSA with a VEBA
If you have an opportunity to pair a VEBA with an HSA, you can do so. In this situation, you would only be able to use the VEBA to reimburse qualified dental and vision expenses until you reach your medical plan deductible. Once you reach that deductible, you can use the VEBA to pay for any eligible medical expenses.
The funds in both of these accounts are yours to keep, but you cannot contribute to a VEBA. You can contribute to the HSA and take advantage of the tax benefits.
Adding a DCAP to any account
If you have a qualified tax dependent, regardless of whatever other accounts you choose, you can also enroll in a dependent care assistance plan (DCAP) if your employer offers it. This account allows you to set aside funds pre-tax to pay for specific costs associated with taking care of your dependent while you work. For example, if you have a child in daycare or after-school care, you can set up an amount to be deducted pre-tax from your paycheck that you can then use to reimburse yourself for those costs.
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