HSA or traditional benefits: what's the difference?

What is a Health Spending Account?

A Health Spending Account gives each eligible employee a set amount the business makes available for eligible health and dental expenses. Employees submit eligible expenses and are reimbursed up to their available amount.

Employers establish the available HSA allocation in advance, providing greater control over the claims budget. Administration fees and applicable taxes should also be considered when determining the total program cost.

What are traditional insured benefits?

Traditional benefits are an insured plan that covers defined categories of expenses — such as prescription drugs, dental care and paramedical services — according to the plan's design. The business and, where applicable, employees pay premiums, and the insurer pays eligible claims.

Traditional plans can also include insurance protection, such as life and disability coverage, that an HSA on its own does not provide.

Key differences

• Flexibility — an HSA lets employees direct their amount toward the eligible expenses that matter most to them. A traditional plan covers what its design includes.
• Employer cost predictability — HSA costs are generally capped by the amounts the employer sets. Traditional plan costs are set through premiums and can change at renewal.
• Insurance protection — a traditional plan can protect employees against larger or unexpected expenses. An HSA is limited to the amount available.
• Employee needs — some employees value choice, while others value the security of broader coverage. Many workforces include both.

It doesn't have to be one or the other

Some businesses use an HSA on its own, some use traditional benefits, and some combine the two — for example, a core insured plan with an HSA alongside it for added flexibility.

The bottom line

The better question isn't which approach is best, but which structure fits your business, your budget and what your people actually value. The appropriate approach depends on the circumstances of the business, its people and the specific plan arrangement.