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 OwnershipEmployee own the HSA account.Your employer owns the FSA account.
Account FundingThe employee and others on the employee's behalf.The employee funds the account.
Unused AmountsThe 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 MethodEmployee 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 AccrualInterest can accrue on a tax-free basis in eligible HSAs.Interest does not accrue.
Catch-up ContributionsUntil 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 BenefitsContributions 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-freeContributions are tax-free, reducing annual taxable income. Reimbursements are tax-free.
Eligible ExpensesAny 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 IntegrationHSAs 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.

Will this article help you save or earn more money? Get others like it simply by entering your email address below. Your email is used only for delivering daily money tips and you can opt out of delivery at any time. Click here to see all your free subscription options.


Ben Edwards, the founder of Money Smart Life, saved up enough to buy a Nintendo back when he was 12 years old. When he used the money to buy shares of Wal-Mart stock instead, he knew he wasn't like the other kids... His addiction to personal finance has paid off for his family and now he's helping you to afford the life that you want. Check him out on the web at Google Plus, Twitter and Facebook.

All posts by


7 Responses to Health Savings Account vs Flexible Spending Account

  • Kathleen

    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.

  • bob

    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

  • Lulu

    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.

  • Ben

    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.

  • Tim Wolfe

    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.


  • 7 High Deductible Health Plan Questions | Money Smart Life
  • Weekend Roundup