I had a great question asked of me today,

about combining a traditional health care plan with an HSA. This employee had gotten confused by their employer’s documentation about changes new to this year.

This employer offers a variety of health related benefits:

• traditional health insurance plans
• a high deductible health insurance plan (HDHP)
• a health care flexible spending account (HCFSA)
• a health savings account (HSA)
• various types of dental/vision coverage, including the option (relevant to this discussion) an employer funded account with contributions annually

Here was the essence of my response.

Just to start off on the right vernacular foot, especially because acronyms often cause confusion, a HSA (health savings account) is not the same as a HCFSA (health care flexible spending account).

One has to have a high deductible healthcare plan to be eligible for an HSA, that’s the federal rule.  Two advantages of the HSA, if you have the cash flow to commit to funding it, is that you can put quite a lot into the HSA (tax-free), and that it doesn’t have to be used by the end of the year.  There is an additional tax form you’d need to complete the following tax season (and your tax preparation method may charge you something extra for this additional work, eating into the savings of this plan), and some weird gotchas if you end up with partial year coverage (such as if you ended up having a qualifying life event, and then switch to coverage under your spouse).  If one uses a HDHP, a big part of the benefit is the HSA access, so it’s almost always better to do both (and non-trivially fund the HSA) rather than just the HDHP.

With a traditional health care plan (such as an 80/20 plan) you can have a health care flexible spending account (HCFSA). Those HCFSA dollars are tax-free dollars with a lower contribution cap, and also those are generally use-it-or-lose it dollars (with some provisions for rolling over a small amount).  You cannot combine a traditional health care plan with an HSA.

What’s new for 2020 for this employee’s benefits options (and what caused the initial confusion and triggered the question to me) is that for their employer one can have [a high deductible health care plan, with or without the HSA] PLUS the employer funded account with an annual contribution.