HSA vs. FSA: What’s the Difference?

These financial tools can help you save hundreds or even thousands of dollars a year in healthcare costs. Find out if a health savings account or flexible savings account is right for you.

During the annual enrollment period each fall, you have a chance to choose the healthcare plan that fits your needs. It’s a big decision. And it feels good to check that important box on your to-do list. But you might not be finished making healthcare decisions yet. You might also need to decide whether you want to have a flexible spending account (FSA) or a health savings account (HSA). So what are they?

In some ways, FSAs and HSAs are alike. They’re both pretax accounts. That means money is taken out of your paycheck and put into the account before it’s taxed, which will save you money. You can use the accounts to pay for eligible healthcare expenses. That might include things like copayments, medical bills, and health-related expenses such as new eyeglasses.

“They both offer a way for you to offset your tax load,” says Adria Gross. Gross is the founder and CEO of MedWise Insurance Advocacy in Monroe, New York. “But there are distinct differences.” You also generally can’t contribute to both an HSA and an FSA in the same year. And not everyone is eligible to open an HSA.

Opening an FSA or HSA could be a powerful way to maximize your savings while meeting your health needs. Here’s what you need to know to decide whether one is right for you.

An FSA Might Be Right for You If:

• You have healthcare expenses that you can accurately estimate. An FSA is a use-it-or-lose-it situation. That means you lose the money that hasn’t been spent by the end of your plan year. So you don’t want to overcontribute.

There are a few exceptions. One is if your employer offers a carryover. This allows employees to roll over $550 of unused funds to the following year, says Gross. Or a company may offer a grace period. This would let you use your FSA funds until March 15 of the following year. (A company can offer one exception or the other, not both.)

• You expect to have multiple medical expenses. Let’s say you take insulin for diabetes, and you know your child needs braces. You can use an FSA to pay for these expenses, either of which could add up to more than $5000.

The maximum amount you can put into an FSA is $2750 per year per employer. If you’re married, your spouse can put up to $2750 in an FSA with their employer too, points out Gross. If you both contribute the max amount and you use it all? It could save you several hundred or even a few thousand dollars. (The total amount depends on your tax rate.)

You want the freedom to buy items before the money is in your account. Because an FSA is prefunded, it works like a line of credit. You’re able to buy new eyeglasses, for instance, when you need them. You just have to be on track to deposit that amount into your account by year’s end. If you don’t use your prepaid debit card, you’ll need to submit your receipts for reimbursement. This is easy to do online or with a smartphone app. You can also check your balance that way.

You’ll likely be in the same job at year’s end. You can’t take an FSA with you when you change jobs, says Gross. Any unused money goes back to your employer. The one exception: if you choose the COBRA continuation of your employer’s health insurance. But even then, you can’t use the FSA money to pay for healthcare premiums.

An HSA Might Be Right for You If:

You have a high-deductible health plan. To qualify for an HSA, you must have a high-deductible plan. A deductible is the amount of money you must spend on medical care before your insurance covers its share. For 2022, the Internal Revenue Service defines a high deductible as $1400 or more for an individual. For a family, it’s $2800 or more.

You want the freedom to roll over the money you don’t use. For 2022, if you have a high-deductible health plan, you can contribute up to $3650 for self-coverage. For family coverage, you can contribute up to $7,300. If you don’t spend as much as you expect? You can use that money for other qualified medical expenses in future years.

You want to invest the money. The only thing better than saving money is investing it. If you’d rather earn interest on the funds in your account than spend those funds, some HSA plans let you invest unused money. That means the money will earn interest, tax-free.

Your employer contributes to the account. “That’s a compelling reason to consider an HSA,” says Maura Carley. Carley is founder and president of Healthcare Navigation in Darien, Connecticut. “Especially if you’re not anticipating using many services in your plan. Once an employer puts that money into your account, it’s your money.”

You can use the funds for qualified medical expenses such as deductibles and copays. You can also use it for things like contact lenses, birth control pills, and even acupuncture.

You want a nest egg for retirement. Remember, there’s a limit to how much you can put into your HSA each year. But between the ages of 55 and 65, you can make what are called catch-up contributions. These let you put an extra $1000 per year into your HSA. You can use the funds to help pay for medical expenses later in life.

Once you turn 65, you can use that money, tax-free, for things like premiums and deductibles, says Gross. You can also use it for medically necessary home renovations. An example: installing a bathroom and shower stall on the first floor because you can no longer get up and down the stairs. And if you’re 65 or older, you can use your HSA for nonmedical expenses without paying a penalty, Gross notes. But in that case, you must still pay income tax on that money.

Hopefully you now have a good idea whether an HSA or FSA is smart for your financial health. Still have questions? Check to see if your health plan offers a digital health management app such as Wellframe. You can search Wellframe’s private library for more information on HSAs and FSAs. Or use the secure messaging system to connect with your member services team to get the answers you need.


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  2. “Health Savings Accounts and Other Tax-Favored Health Plans.” Department of the Treasury Internal Revenue Service, February 11, 2021, https://www.irs.gov/pub/irs-pdf/p969.pdf. Accessed August 24, 2021. See page 17
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  5. “Deductible.” HealthCare.gov, https://www.healthcare.gov/glossary/deductible/. Accessed August 24, 2021.
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