Flexible spending accounts vs. health savings accounts

Flexible spending accounts (FSAs) and health savings accounts (HSAs) can be wonderful options, but looking into them may bring up some questions on what would be best for you. There are a lot of similarities with the 2 types of accounts. The differences, though, will be important to know when choosing which one will work best for your lifestyle and with your current health insurance plan. Outlined below are some key characteristics of each plan, showing how they are similar and how they are different.

FSA and HSA 

First things first, we’ll go over 4 ways FSAs and HSAs are similar. Then we’ll review 4 ways they are different. 

FSA and HSA Similarities 

1. FSAs and HSAs are both like having a personal savings account for the purpose of paying medical or qualifying expenses.¹
2. These accounts may help you save money by contributing to them tax-free.²
3. You may use the money in these accounts to pay for copays, deductibles or medical expenses you have throughout the plan year.³
4. FSAs and HSAs can both be provided through an employer.⁴

FSA & HSA Differences

1. FSAs are owned by the employer and typically do not have eligibility requirements.⁵ HSAs can be owned individually outside of the employer and are eligible only with high-deductible insurance plans. 
2. FSA is a flexible SPENDING account. What this means: FSAs are a “use it or lose it” account. You have 1 plan year to spend the money you’ve elected to contribute into the account. If, at the beginning of the plan year, you decide to contribute $1,500 into your FSA, you have that 1 plan year to spend that money on medical expenses. This money does not belong to you if you are no longer employed by the employer offering the FSA. Your employer may allow a maximum of $500 to be rolled over into the next plan year.
3. HSA is a health SAVING account. What this means: This money can be help in a similar manner as a savings account. It can roll over from plan year to plan year. This account belongs to you and will follow your from employer to employer.⁶
4. FSA contribution amounts can only be established during open enrollment or with an employment change or family status change. HSA contributions can change at any point in the year.⁷
5. With an FSA, as soon as you determine the full amount you’d like to contribute that year, you will have access to that amount. It doesn’t matter if you’ve contributed the full amount yet. With an HSA, you can only spend the money that is available in the account at that time.⁸

Can I use my FSA or HSA for my prescriptions? 

The short answer is yes.

However, it’s important to double-check and make sure your prescriptions or medical needs qualify. You can spend your account funds on medicine, some over-the-counter products with a doctor’s prescription and medical equipment or health kits.⁹ The IRS has a list of medical expenses that qualify.

No matter which type of account you choose, either one can be beneficial in saving money overall. It’s important to assess your estimated healthcare costs for the year when choosing an account and your contribution amount. Also, be mindful of how much you have in your account near the end of the plan year. If you have an FSA, be sure to check what amount you are able to roll over, if any, and what you have remaining in your account. Remember, FSAs are usually a “use it or lose it” account. So schedule that appointment or refill the medicine before the plan year comes to an end. 

You can always consult with your healthcare broker or your human resources representative if you have any questions or concerns on the details of your account.

Sources:

1. Louis Norris, “What Is the Difference between a Medical FSA and an HSA?” Healthinsurance.org, last accessed September 13, 2019, https://www.healthinsurance.org/faqs/what-is-the-difference-between-a-medical-fsa-and-an-hsa/.
2. Mila Araujo, “The Differences between HSA and FSA: Which Is Better?” The Balance, last accessed September 13, 2019, https://www.thebalancemoney.com/differences-between-hsa-and-fsa-and-best-options-4156726.
3. Mike Kappel, “FSA vs. HSA: What’s the Difference?” Patriot Software, last accessed September 13, 2019, https://www.patriotsoftware.com/blog/payroll/fsa-vs-hsa-what-s-the-difference/.
4. Norris, “What Is the Difference between a Medical FSA and an HSA?”
5. Kappel, “FSA vs. HSA: What’s the Difference?”
6. “Difference between FSA and HSA,” Differencebetween.com, last accessed September 13, 2019, https://www.differencebetween.com/difference-between-fsa-and-hsa/.
7. Kappel, “FSA vs. HSA: What’s the Difference?”
8. Araujo, “The Differences between HSA and FSA: Which Is Better?”
9. “Using a Flexible Spending Account (FSA),” HealthCare.gov, last accessed September 13, 2019, https://www.healthcare.gov/have-job-based-coverage/flexible-spending-accounts/.