HSAs vs. FSAs: What's the Difference?

Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) are both tax-advantaged accounts you can contribute money to in order to save on medical costs like insurance deductibles, copayments and coinsurance, along with monthly prescription costs and everyday health needs from pain relief to baby care to travel essentials.

HSAs and FSAs both come with their own distinct advantages. For example, while an HSA is available only to those enrolled in a high-deductible health plan (HDHP), it allows contributions to roll over from year to year, making it a good option for those who want to save for long-term healthcare expenses. In contrast, FSAs are employer-provided benefits — you don’t need to be enrolled in a health insurance plan to enroll in an FSA (though you can be), you just need to work for an employer that offers you an FSA as a benefit. FSAs have a “use-it-or-lose it” rule, meaning contributed funds must be spent within the plan year or they’ll be forfeited back to your employer.

When deciding which account to enroll in during open enrollment, consider your health plan type, expected medical expenses, and your ability to forecast your overall healthcare spending for the year. An FSA requires more precise planning due to its stricter spending rules (though, again, you don’t have to be enrolled in a high-deductible health plan to have an FSA), while an HSA offers more flexibility and potential for long-term growth.

Are you eligible for an HSA?

HSAs aren't available to everyone — only people who have a qualified high-deductible health plan, or HDHP, can select an HSA. These plans have the benefit of lower monthly premiums — a huge win if you're generally healthy — but they require you pay more out of pocket for medical needs until you hit your deductible. Only preventive care like checkups and general wellness visits are usually covered before you hit your deductible.

When deciding between an HSA and an FSA, figuring out which health insurance plan fits your needs and budget is the real first step. If an HDHP makes sense for you, that's great. Here are a few more requirements to be aware of when considering opening an HSA:

An HDHP has to be your only health insurance plan
You must not be eligible for Medicare
You cannot be claimed as a dependent on someone else's tax return
You have to be currently covered under a high-deductible health plan (HDHP)
You aren't currently on Medicare or supplemental health care plan (including a spouse's employer-sponsored plan)
You're not considered a dependent under anyone else's tax return
You're not covered under other disqualifying health coverage, including yours or your spouse's enrollment in a traditional healthcare FSA

Also, know that almost all HDHPs are HSA qualified, but it's always good to double check with your provider before committing during open enrollment.

So, what are the differences between HSAs and FSAs?

Both HSAs and FSAs offer tax savings for qualified medical expenses. However, there are several differences between these accounts. For example, HSAs make a great long-term option with more flexibility in contributing, the ability to keep your unused balance, and additional tax benefits. Let's break this down in a side-by-side comparison.

	Health savings account (HSA)	Flexible spending account (FSA)
Eligibility requirements	Must have a high deductible health plan (HDHP).	No eligibility requirements beyond having employer-sponsored health insurance.
Contribution limit	2025 contribution max — $4,300 for individuals or $8,550 for families.	2024 contribution max — $3,200. (Note: The IRS is expected to release the 2025 contribution limits for FSAs in the fall of 2024).
Changes to contributions	You can change how much you contribute to the account at any point during the year.	Contribution amounts can be adjusted only at open enrollment or with a qualified life event (QLE) like a change in employment or family status.
Minimum deductible	Minimum deductible for the HDHP to be HSA qualified (2025): $1,650 for individuals, $3,300 for families.
Maximum HDHP out-of-pocket limit	For 2025: $8,300 for individuals, $16,600 for families.
Rollover	Unused funds roll over into the next year.	Funds are "use-it-or-lose-it," if not used by plan deadline, or grace period deadline, or rolled into the next year's total, at the discretion of your employer.
Employment requirement	Your HSA can follow you as you change employment. Additionally, self-employed workers can have an HSA.	Your FSA is tied to your job. You may be able to continue FSA ownership through COBRA.
Tax impact	Contributions are tax-deductible, but can also be taken out of your pay pre-tax. Growth from interest and/or investment is tax free.	Contributions are pre-tax, and qualified expenses / reimbursements are also untaxed.

Do I need to consider an HRA?

An HRA is an account designed to pay for medical expenses you incur that your standard health insurance plan does not cover. An annual allowance on spending from the account is established by your employer, which is then used to reimburse you for eligible out-of-pocket medical expenses, after they happen.

Employers also often define what you can use your HRA on, so you may be limited to more common costs like copays and coinsurance, or you may have an HRA that's wide-open to all eligible medical expenses, including over-the-counter medications.

How do HRAs work, exactly?

Payments made into an HRA are tax-deductible to your employer, while the reimbursements are tax-free to you. And, much like FSAs, HRAs are owned by your employer. In other words, if you take a new job somewhere else, your HRA isn't making the trip with you. And if you don't use the allotted HRA funds within the defined plan year, they won't carry over into the following year. Because HRAs are funded solely by your employer; you will not be able to contribute as with an HSA or FSA.

Company-owned HRAs are paid into solely by your employer and the rules around how and when they can be used are also defined by your employer.

With an HRA, only out-of-pocket medical expenses are eligible for reimbursement. This may include out-of-pocket expenses your health plan doesn't cover, as well as other qualified expenses that are defined by the IRS and approved by your employer.

Worth noting

Something listed as an IRS-approved expense won't necessarily be an employer-approved expense. So, you'll want to check with your plan administrator regarding the specifics of what your HRA actually covers.

This is a big contrast to an HSA, where, in addition to your financial contributions, your employer and family members can make contributions. HSAs are real money accounts that accumulate interest over time.

Ultimately, HRAs are accounts designed with the same general goals as FSAs and HSAs. And they can offer advantages depending on your health and financial outlook. Be sure to speak with a financial professional to see if an HRA better suits your family's needs.

Can I have both an HSA and FSA?

As nice as it would be, if you qualify for (and choose) to go the HSA route, you can't also choose to set up a traditional healthcare FSA. Yes, this includes household situations where your spouse might have separate health insurance, but wants to claim the same dependents. In other words, you cannot benefit as a dependent on someone else's FSA while also maintaining your own separate HSA.

But there are a few exceptions to this "one or the other" rule. A traditional FSA will probably not be compatible with an HSA. And if your spouse elects an FSA that's not compatible with an HSA, your ability to contribute to an HSA goes away, too, since you're technically considered covered under that FSA (whether your spouse adds you as a dependent or not). But, there might be a few exceptions...

Limited-Purpose Flexible Spending Account

This type of account typically only allows you to spend money on qualified dental and vision expenses, though you can have a Limited-Purpose Flexible Spending Account (LPFSA) in conjunction with an HSA. The account can also be used for dental and vision expenses for your spouse and qualifying dependents including children through age 26.

Remember to check with your plan administrator or HR department about all of the details of your plan, including which plan will be used to pay expenses first. If the plans are set up so that your HSA funds are withdrawn first, you may want to see if it's possible to have LPFSA eligible expenses withdrawn from the LPFSA first, or if you'll have the ability to request that they be transferred from the HSA to the LPFSA.

Post-deductible FSA

This isn't a common type of account. With a post-deductible FSA, before you hit your minimum deductible for the year, expenses are limited to dental and vision only with this account. Once you hit your minimum HSA deductible for the year, you can use the money from the post-deductible FSA for all qualified medical expenses.

So, which tax-free health account should I get?

There is no "right" answer to this — both HSAs and FSAs have benefits that can make managing your out-of-pocket medical expenses easier throughout the year.

When deciding on a tax-free healthcare account, all of this back and forth needs to boil down to one question: "What do I really want to do with this money?" While FSAs are perfect for covering the costs of everyday medical needs, or offsetting larger expenses, HSAs can do the same, while also serving as a longer-term resource of financial stability.

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