The alphabet soup of consumer directed healthcare (CDH) – FSAs, HRAs, HSAs, MERPs, MSAs – can be confusing. Some are strictly employee- or employer-funded, while others may be funded by any party. Some accounts offer rollover; others do not. Knowing the differences – like an HSA vs FSA – is important when it comes time to enroll for an account or when your employment status changes. Both offer valuable benefits, some of which overlap. But when comparing the benefit accounts, they differ from one another in several important ways.
Comparing HSA vs FSA
Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) are designed to enable consumers to take better control of their personal healthcare. Instead of being limited only to what is covered by an insurance plan, consumers can access tax-free funds to cover healthcare fees and other qualified out-of-pocket expenses. Both accounts are offered through employer-sponsored benefit plans, and funds from both can be used to pay for personal expenses or those of an immediate family member.
Some of the differences in benefits of HSA vs. FSA include eligibility requirements, contribution limits, and portability.
What are the differences?
Many consider the two most important differences regarding the benefits of HSA vs. FSA to be ownership and portability. An FSA is owned by the employer. If you leave the company, whether you find another job, get fired, or retire, the plan stays behind. Any unused funds in the plan stay behind as well.
In contrast, an HSA belongs to the account holder for life. Therefore, all funds in the account stay with you and follow you wherever you go.
The chart below provides a quick overview of the similarities and differences between an HSA vs. FSA.
HSA vs. FSA – Breaking Down the Differences
|Health Savings Account||Flexible Spending Account|
|Eligibility requirement||High Deductible Health Plan (HDHP)||None|
|Funding||Account holder||Account holder|
|2020 Contribution limits||Individual: $3,550 Family: $7,100||$2,700|
|Changing contributions||Any time during the year||During open enrollment or with a change in employment or family status|
|Portability||Stays with account holder||None, except if eligible for FSA continuation through COBRA|
|Integration with other tax-advantaged accounts||None||Yes|
|Ability to Invest||Yes||No|
|Rollover/Account Accumulation||Yes||Partial. Some employers offer up to $500 rollover or a grace period of 2.5 months to spend unused funds|
|Funds available for use in retirement||Yes||No|
HSA vs FSA: The Primary Advantage
An HSA has two advantages over FSAs that makes it a much more versatile and effective financial tool. First, there is no “use it or lose it” with an HSA. Every year, any remaining money in the account rolls over to the following year. Second, account owners have the ability to invest their HSA balance without paying taxes on the earnings. The ability to invest tax-free money any way you want, for as long as you want, offers a significant long-term financial advantage.
With these advantages, HSA owners can build up their account to use down the road for healthcare expenses, or use their account as a way to supplement their retirement savings.