Get the Most Out of Your Health Insurance

HSA vs. FSA: Breaking Down the Difference

November 1, 2023
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Open Enrollment season is here! During this time when you’re electing annual health insurance benefits, you may have the option to choose between two different tax-advantaged accounts that can help you save on healthcare costs:

  • Health Savings Accounts (HSAs)
  • Flexible Spending Accounts (FSAs)

These accounts make it easier to manage out-of-pocket expenses when you need to make a medical-related purchase that your health plan doesn’t cover. That could be anything from eyeglasses to a dental procedure.

A survey revealed that 65% of Americans don’t know that HSAs and FSAs are two different things. We’re here to tell you they are – and help you decide which is best for you and your family if they are both available to you.

Similarities

HSAs and FSAs let you set aside money before it’s been taxed to pay for healthcare-related expenses. With both FSAs and HSAs, you can pay for things like medical bills, dental and vision expenses, medications, and much more (scroll down to the ‘uses’ section). In most cases, you’ll get a debit card for your account and can use it to pay for qualifying expenses.

HSAs and FSAs are generally offered by employers as part of benefits packages, though you may be able to open an HSA on your own if you have an HSA-eligible health plan through work, your spouse's employer, private insurance, or the insurance marketplace.

Some key differences

Eligibility

Whether you can open an FSA depends on your employer; HSAs are determined by the type of health plan you have. Only employers offer FSAs, while HSAs can be offered by employers but can also be opened independently.

  • HSA: Requires enrollment in a High Deductible Health Plan (HDHP).
  • FSA: Available to anyone with access through their employer, regardless of the type of health plan. You’re only eligible if your employer offers an FSA as an employee benefit.

Ownership

  • HSA: You own your HSA, whether you fund one on your own or through your job. That means if you leave your job, you can take it with you.
  • FSA: Your employer provides and owns the account. That means your funds are not portable so if you leave your job, you lose the money in your account.

Uses

Do HSAs and FSAs only help pay for things like copays? Nope! They do help pay for a lot of the same healthcare-related costs you might expect (like copays, deductibles, and coinsurance) but also costs you might not (like menstrual care products, weight-loss programs, and alcohol and drug treatment). The major difference is that HSAs are intended to cover healthcare only, while there are different types of FSAs, including dependent-care FSAs. Money put into a dependent-care FSA can be used to pay for child or adult day care.

  • HSA: There are thousands of products and services you can buy with an HSA. From equipment to manage your diabetes and over-the-counter medications to even lead-based paint removal – what your HSA covers may surprise you. You can search for qualifying items at the HSA store.
  • FSA: Similarly, thousands of products and services are eligible. From hearing aids and fertility treatment to even sunscreen and heating pads – what your FSA covers may also surprise you. You can look up qualifying items at the FSA store.

Also, the IRS has a list of eligible expenses. Check if an item or service is on the list before you buy or schedule it.

Rollover

  • HSA: Funds can roll over from year to year, there is no “use it or lose it” rule.
  • FSA: Generally, there is a “use it or lose it” rule, so you lose any money you haven't used by the end of the year – but there are some exceptions. Your employer may give you a two-and-a-half-month grace period to spend the money or allow you to carry over up to $610. Check with your employer to see if you can carry over some of your FSA at year-end.

Investment

  • HSA: HSA money can be invested and grow tax-free.
  • FSA: FSA money cannot be invested. These accounts serve as a short-term savings account rather than an investment account.

If you’re eligible for both an HSA and FSA, your choice will come down to your personal situation. If you’re generally healthy and don’t have many medical costs, an HSA might be better for you to allow for long-term savings. If you have a lot of medical expenses or need help with dependent care, an FSA can help you save money now. Either way, both HSAs and FSAs are great options for making healthcare more affordable for you.