Health Savings Account vs Flexible Spending Account
September 11, 2010
We recently covered the health savings account and have written about flexible spending accounts and in the past and thought it was time to take a look at health savings accounts vs flexible spending accounts.
Both can be useful tools for medical expense income tax deductions but one thing many people are unhappy with are flexible spending account deadlines and their “use it or lose it” policies. The health savings account does address that issue and also differs from a flexible spending account in other ways.
The table below compares eight different aspects of HSA and FSA accounts, hopefully that helps shed a little more light on the difference between the two.
| Health Savings Account (HSA) | Flexible Spending Account (FSA) | |
|---|---|---|
| Account Ownership | Employee own the HSA account. | Your employer owns the FSA account. |
| Account Funding | The employee and others on the employee's behalf. | The employee funds the account. |
| Unused Amounts | The individual owns the account and can carry any unused funds over into the next year. | Unused funds remaining at the end of the year are forfeited to the employer. Some companies have a 3 month grace period. |
| Funding Method | Employee determines how much to contribute by pre-tax payroll deduction or by tax deductible contribution. | Employee determines how much to contribute pre-tax into the account. |
| Interest Accrual | Interest can accrue on a tax-free basis in eligible HSAs. | Interest does not accrue. |
| Catch-up Contributions | Until enrolling in Medicare, employees age 55 and older may contribute an additional $1,000 to their HSA each year. | Catch-up contributions are not allowed. |
| Tax Benefits | Contributions to the account are tax-deductible. Withdrawals for eligible medical expenses, as defined by IRC Section 213(d), are tax-free. Interest or investment earnings are also tax-free | Contributions are tax-free, reducing annual taxable income. Reimbursements are tax-free. |
| Eligible Expenses | Any otherwise unreimbursed medical expense (as defined under IRC Section 213 (d)) is eligible. Health insurance premiums cannot be paid from the account, with the following exceptions: any health insurance (other than a Medicare supplement policy) for a person age 65 or older, COBRA, long-term care, and health care while receiving unemployment compensation. | Any otherwise unreimbursed medical expense (as defined under IRC Section 213 (d)) is eligible. However, health insurance premiums and long-term care services are not reimbursable even though they are tax-deductible. |
| Account Integration | HSAs can be integrated with most limited-purpose flexible spending accounts (LP-FSAs); however, they cannot be combined with a standard FSA. | Standard FSAs cannot be integrated with HSAs. |
All posts by Ben Edwards
The only thing I’m wondering is WHO is eligible for each – FSA/HSA? Is one only for high deductible health insurance carriers and one isn’t or why would everyone not choose the HSA (since I don’t see anything it does NOT offer that an FSA does offer) since you can roll over your funds w/it? You said above it may be what the employer offers. Is that all or are some folks not eligible for an HSA and/or FSA? Thank you.
i cannot find any information that relates to whether you can still have an fsa with medicare part a – i have read that an hsa is no longer allowed but nothng about an fsa
My employer does not allow you to have both the FSA and the HSA at the same time. I recently switched my insurance over to the higher deductible plan and I now have the HSA and I will see how that works out for me.
Tim, you’re right, it doesn’t have to be either or. I think the last point about Account Integration speaks to that a bit.
This was supposed to be a comparison of health spending accounts and flexible spending accounts, not to say that you had to do one or the other. I probably should have called it a comparison instead of one vs the other.
I think for many people it boils down to what their employer offers.
Ben, why does it have to be FSA vs HSA. How about FSA and HSA? And don’t forget that for the smaller employer there is the section 105 medical reimbursement plan.