You’re looking to cut back on smoking but can’t quite stomach the idea of spending $35 on a pack of gum to replace your cigarettes.

In that case, you’ll be glad to know that your health insurance may offer a couple of options through your Flexible Spending Account (FSA) or Health Savings Account (HSA). These are tax-free savings accounts that you can use over the course of the year to cover expenses associated with health services, preventative care, and more - including smoking cessation tools.

What is an FSA or HSA? What is the difference, and how do I set it up?

Flexible spending accounts and health savings accounts allow you to use pre-tax income for eligible medical and healthcare expenses. Some key differences between the two determine who is eligible and how you use them.

Your employer must set up flexible spending accounts. FSA’s are a bit more restrictive - they are not available to unemployed or self-employed people, and because the account actually belongs to your employer, they get to keep any leftover money - even though it’s being withdrawn from your paycheck every two weeks.

So if you leave your job during the calendar year or don’t spend all of the money, you forfeit any remaining funds in your FSA back to your employer - you’re basically giving them a portion of your hard-earned salary! (Once I left a job and didn’t know that my FSA funds would no longer be available to me 30 days after my last day. The next time I left a job, I made sure to buy a new pair of glasses and some nice FSA-eligible skincare products before my last day to make sure I was maximizing the account). To this day, I wish I’d stocked up on some FSA-eligible products before I left - partly so I’d have all of that stuff when I needed it, but mostly to stick it to my company.)

Some employers will give you a grace period to use remaining funds or will let you roll over up to $500 into your account for the following calendar year, but check with your employer to understand your specific circumstances.

In contrast, health savings accounts are set up and owned by individuals. There are a couple of limitations on health savings accounts: you have to have a high-deductible health insurance plan to open an HSA alongside it. However, since you own the funds, you can rollover money into the next year, and even take the money with you to your next job.

What can you use FSA or HSA funds for?

You can use FSA or HSA funds for a variety of health expenses:

  • co-pays for doctor’s appointments or medical procedures
  • eyeglasses
  • sunscreen
  • feminine hygiene products

You can also use FSA and HSA funds for nicotine replacement therapies, including LUCY’s chew and park or lozenge products. In addition, if your health insurance covers therapy or other mental health services, this might be another valuable tool in your journey toward cutting back on smoking. Bonus: you can use FSA or HSA funds to cover the copays for mental health services as well.

What do I need to know before I set up my FSA or HSA?

There are some essential things to know to make the most of your flexible spending or health savings account, including contribution limits and the timeframe in which you can use the funds.

Both flexible spending and health savings accounts have annual contribution limits: the maximum contribution for a flexible spending account is $2,650 for individuals and $5,300 for households. The maximum contribution for a health savings account is $3,450 for individuals and $6,900 for households.

One crucial note: you can only sign up for or make adjustments to your flexible spending account once a year, during your health insurance’s open enrollment period.

You can determine how much money you want to have available over the course of the year, and it’s all available to you on January 1, but is deducted from your paychecks throughout the year.

But then the money is use-it-or-lose-it - so if you put $1,000 in your FSA for 2021, you can’t adjust the amount midway through the year or stockpile the leftover money for a future year (unless your employer lets you roll over up to $500).

Suppose you have a high-deductible health insurance plan that allows you to open a health savings account alongside it. In that case, open the account and adjust your contributions throughout the year, as long as you stay within contribution limits.

How do I use FSA funds?

Using your money is one area where FSA’s and HSA’s are pretty similar.

At the beginning of the year, you’ll get a prepaid debit card that you can use to pay for health expenses. Funds will automatically withdraw from the account.

If you don’t have your card handy, you can also submit claims and receipts to reimburse yourself.

You’re only allowed to use the money for eligible expenses, though - if you have an FSA and use the money for an ineligible expense, you may end up having to pay for it after the fact. If you use HSA funds for an ineligible expense before turning 65, you’ll have to pay a stiff penalty and pay taxes on the income the following year.

If you have specific questions about your health insurance plan, we recommend talking to your health insurance company or your employer’s human resources and benefits departments. They’ll be able to walk you through the specifics of your healthcare plan and figure out which options make the most sense for your circumstances.

Consider revisiting both your FSA dollars and your new year’s resolutions. If your New Year’s Resolution was to cut back on cigarettes, and you need to use up your FSA dollars that won’t roll over into next year, consider stocking up on new nicotine replacement products to help you hit that goal by December 31!

Disclaimer: The information contained in this website is provided for general informational purposes only and is not intended as, nor should not be construed as a substitute for, professional financial, medical, or health advice on any subject matter. Please consult your physician regarding any medical treatment decisions.