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HSA vs. FSA: What's the difference?

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If you watched the video above, you’ve learned the basics of tax-advantaged Flexible Spending Accounts and Health Savings Accounts. Below, the stories of Maxine, Phil and Sally show you how different life circumstances and financial goals influence someone’s choice of a health care account.

FSA: A mom budgets for her family’s health care.

Maxine, 34, is a working mom living in Jacksonville, Florida. With her two kids out of the house in the mornings, Maxine has time for a run before starting her work day. The regular exercise makes her feel strong and clear-headed, but a nagging pain in her hip needs professional attention. There are other health concerns in Maxine's household. Her toddler frequently picks up viruses at daycare, leading to fevers and ear infections. Maxine’s husband, George, has bad allergies that require regular shots to ease his symptoms.

Given the family's many doctor visits, Maxine opted for a low-deductible health plan. This means that she is eligible for a flexible spending account, or FSA, because only those with high-deductible health plans (HDHPs) qualify for HSAs. As an FSA member, Maxine can get medical expenses reimbursed based on what she plans to contribute to her account for the year, rather than what’s already been deducted from her paycheck. Maxine commits to contributing $2600, or $100 per paycheck. Because the account is funded with pre-tax money, she’ll save about 30 cents on the dollar on all eligible health bills: That’s about $780 this year alone.

Maxine will use her FSA to cover costs related to treating her aching hip, George’s allergies and their kids’ pediatrician visits. Toward the end of the year, if she still has FSA funds remaining, she can stock up on supplies she knows her family will use, from bandages to a heating pad. Juggling work and fitness isn’t easy, but Maxine is happy that her FSA helps her save serious money.

HSA: A young man plans for the future.

Phil, 25, is a single guy living in Raleigh, North Carolina. He loves his job as a programmer for a gaming start-up but his real passion is hosting dinner parties for friends. His homemade dishes are chock full of fresh veggies, helping Phil stay healthy. In fact, the only time he visits his doctor is for preventive care, such as annual check-ups and flu shots. Phil chooses a low-cost, high-deductible health plan because he assumes he'll have very few health expenses over the coming year. This means he is eligible for either an HSA or an FSA.

He goes for an HSA because the money he saves can be rolled over year after year. He signs up to contribute $1000 for the year, or $39 per paycheck. As Phil gets older or if he starts a family, he will find the cash accumulated in his HSA very useful. And there’s an additional benefit: HSA plans often give you the option of investing your funds, which earn profits tax-free. With an eye on the future, Phil knows that an HSA is the right choice.

Find out more about HSAs and eligible health expenses.

FSA and HSA: A savvy woman maximizes her savings.

Sally, 49, is single and runs a successful engineering firm in Philadelphia. Sally wears glasses with a strong prescription and recently learned she would need some dental work. Otherwise, her health is excellent and she rarely visits the doctor.

Sally expects that she won't meet her health plan deductible in the coming year, though she is certain she'll use vision and dental services. With this in mind, Sally signs up for vision and dental plans, as well as a high-deductible health plan. Her HDHP makes her eligible for an HSA, but Sally can also take advantage of something else: a type of FSA known as a Limited Purpose FSA (LPFSA.) These accounts work like regular FSAs, but funds can only be used for vision and dental expenses. Sally plans to contribute pre-tax dollars to both an LPFSA and an HSA, maximizing her savings. Her HSA money will accumulate over time and be available to use on medical expenses she incurs in later years, even in retirement.

Find out how seeing an eye doctor can be good for your overall health.

HRA: A new employee gets an unexpected bonus.

A few months ago, Mateo, 55, started working for a restaurant chain based in Houston, Texas. Mateo has a bad back, which he treats with regular chiropractic visits. When reviewing his health benefits, he got a pleasant surprise: His package includes a Health Reimbursement Arrangement (HRA) funded with $3,000.

Similar to other health savings accounts, HRAs can be used toward eligible out-of-pocket medical expenses. Mateo estimates that his funds will cover his annual chiropractor costs, with some left over to cover part of his deductible. He’s grateful for this unexpected windfall, and plans to contribute the money he saves on out-of-pocket medical fees to his retirement savings.

Unlike FSAs and HSAs, only your employer may contribute money to your HRA account. Mateo’s funds are available immediately, and his company allows unused dollars to be carried over from year to year. However, if he leaves his job or changes his health plan, his HRA can’t come with him. Any amount left in the account is returned to his employer. That’s fine by Mateo, who hopes to stick with this company for the long term.

Key takeaways about HSAs and FSAs.

  • Both accounts offer tax benefits and have annual contribution limits.  
  • You must have a high-deductible health plan (HDHP) to qualify for an HSA.
  • Funds from your HSA roll over year after year.
  • Some HSAs offer investment options.
  • HSA holders cannot spend more than the funds that have been deducted from their paycheck. However, they can file for reimbursement later in the year.
  • You can't contribute to an HSA and a traditional FSA in the same year. But HSA holders can contribute to an LPFSA for dental and vision expenses, and to a Dependent Care FSA for child care costs.
  • FSAs work on a "use it or lose it" basis, meaning any funds not spent by the end of your plan year will be lost, unless the plan has a grace period or rollover feature.
  • You can use your FSA to cover eligible health care expenses early in the year, as long as you plan to contribute what's necessary to cover those expenses by the year's end.
  • You contribute funds to an HSA and FSA, but only your employer can contribute to your HRA.
  • With HRAs, employers may limit which health expenses are eligible and the amount you’re able to roll over from year to year.

It's important to do your research to determine which account is best for you and your family. To learn more, contact your FSA and HSA plan sponsor or go to PayFlex, an Aetna subsidiary that manages health savings accounts.