HSA vs. Health FSA: What’s the difference?

Open enrollment season is right around the corner! During this time, 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 (Health FSAs)

These accounts may make it easier to manage out-of-pocket expenses when you need to make a medical-related purchase. That includes anything from doctor visits to eyeglasses to a dental procedure. Here are some tips to help you decide which is best for you and your family.

How are they the same?

• With both HSAs and Health FSAs, you can set aside money before it’s been taxed. With HSAs, there’s a triple tax advantage:
  1. Tax-free contributions: You can contribute pre-tax dollars via payroll deductions (contributions you make directly to your account may also be tax deductible).
  2. Tax-free growth: Interest or earnings from your account grow tax-free as long as it stays in your account or you use the money for eligible expenses.
  3. Tax-free withdrawals: You can pay for qualified health care expenses on a tax-free basis.
• In most cases, you’ll get a debit card for your account and can use it to pay for qualifying expenses, such as medical bills, dental and vision expenses, medications, and much more (scroll down to the ‘How can you use the funds?’ section)

What makes them different?

Who is eligible?

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

What if I change health plans?

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

How can you use the funds?

• HSAs and Health FSAs help pay for 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).
• In addition to Health FSAs, your employer may offer other types of FSAs like a Dependent Care FSA which is operates much like a Health FSA but the funds must be used for the specific purposes allowed for those other FSAs (for instance, daycare for dependents).

Do the funds roll over?

• HSA: Funds can roll over from year to year, there is no “use it or lose it” rule.
• Health 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 an amount up to a limit set by the IRS each year ($660 for 2025). Check with your employer to see if you can carry over some of your FSA at year-end.

Can the money be invested?

• HSA: HSA money can be invested and earn interest which grows tax-free. You can make tax-free withdrawals from your account to pay for qualified health expenses.
• Health 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 Health FSA, the 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, an FSA can help you save money now. Either way, both HSAs and Health FSAs are great options for making healthcare more affordable for you.

Note: AZ Blue and its affiliates are not tax advisers. This article is intended to be general information only and nothing in this document is intended to be taken as tax advice. Please consult the relevant IRS publications or your own tax adviser for questions relating to your specific situation.