Two Accounts That Can Reduce Your Healthcare Costs

Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) are both tax-advantaged tools that help you pay for qualified medical expenses — but they work quite differently. Choosing the right one (or knowing how to use both) can save you a meaningful amount of money each year.

What Is an HSA?

An HSA is a savings account available to people enrolled in a qualifying High-Deductible Health Plan (HDHP). Contributions are made with pre-tax dollars, the money grows tax-free, and withdrawals for qualified medical expenses are also tax-free — a rare "triple tax advantage."

Key HSA Features:

  • Must be paired with an HSA-eligible HDHP
  • Funds roll over year to year — there's no "use it or lose it" rule
  • Can be invested once your balance reaches a certain threshold (varies by provider)
  • After age 65, funds can be withdrawn for any purpose (taxed like income, similar to a traditional IRA)
  • Annual contribution limits are set by the IRS and updated yearly

What Is an FSA?

A Flexible Spending Account (FSA) is an employer-sponsored account that lets you set aside pre-tax dollars for eligible medical expenses. Unlike an HSA, FSAs are not tied to a specific insurance plan type — most people with employer-sponsored coverage can open one.

Key FSA Features:

  • Available with most employer health plans (not just HDHPs)
  • "Use it or lose it" rule: unspent funds generally expire at year-end (some plans allow a small rollover or grace period)
  • Funds are available in full at the start of the plan year, even before you've contributed the full amount
  • Cannot be invested or taken with you if you leave your employer
  • Annual contribution limits are lower than HSAs

HSA vs. FSA: Head-to-Head

Feature HSA FSA
Requires HDHP Yes No
Funds roll over Yes (fully) Limited or none
Investment option Yes No
Employer portability Yes No
Full balance upfront No (contribute over time) Yes
Tax advantage Triple (contribute, grow, withdraw) Single (contribute pre-tax)

Qualified Medical Expenses for Both Accounts

Both HSAs and FSAs can be used for a wide range of medical costs, including:

  • Doctor visit copays and deductibles
  • Prescription medications
  • Dental and vision care
  • Medical equipment (glasses, hearing aids, blood pressure monitors)
  • Mental health services
  • Over-the-counter medications (since 2020 legislation expanded eligibility)

Which Should You Choose?

The right answer depends on your situation:

  1. If you have an HDHP and are generally healthy: An HSA is almost always the better long-term option. The ability to invest and carry over funds makes it a powerful retirement healthcare asset.
  2. If you have predictable, near-term medical expenses: An FSA's upfront availability can be useful — just be careful not to over-contribute since funds expire.
  3. If you have both options available: Some people use a Limited Purpose FSA (for dental and vision only) alongside an HSA, maximizing tax benefits.

The Bottom Line

Both accounts reduce your tax burden while helping you pay for healthcare. HSAs are more flexible, portable, and powerful long-term. FSAs are simpler and accessible to more people. If you're eligible for an HSA, prioritize funding it — especially if your employer contributes to it as well.