HSA vs. FSA: What’s the Difference?

When it comes to understanding your health care plans, benefits and potential savings, it can be very confusing. You are probably familiar with the kinds of health care plans you are able to access through your employer. FSAs and HSAs work a little differently in that they are not included under traditional health plans. Companies sometimes offer their employees FSAs and HSAs as part of their benefits packages to offer their employees more options for savings.

Whether you are an employer or employee, it is important to be aware of and understand the differences between HSA and FSA. We will cover these differences here, so next time you see these acronyms, (you are hopefully a little less confused) and empowered with the tools you need to make the best use of either type of account.

What are FSA and HSA plans? 

You can think of flexible spending accounts (FSA) and health savings accounts (HSA) as personal savings accounts that grant consumers more control over their personal healthcare. So, instead of being restricted to whatever benefits that are available through their insurance plan provided by their employer, FSAs and HSAs enable consumers to use tax-free funds for qualifying medical and out-of-pocket expenses. While it is of course a very nice thing that employers can offer their employees, helping to increase employee retention and morale within their company, employers are not required to offer FSA and HSA to their employees. They are also not required to contribute any funds to an employee’s FSA or HSA plan if they do offer such plans at all to their company. Employees are able to use either FSAs or HSAs to cover personal expenses or those of an immediate family member. 

What are the differences between FSA and HSA? 

While there are many similarities between the two, it is vital to understand their differences so you know how to use them to your benefit. Right off the bat, FSA is owned by the employer. This means that you will only be able to access and use the plan while you are still employed at the company. So, whether you leave the company to find a new job, or get terminated, retire, whatever your story is —  you will unfortunately lose access to not just the plan, but any unused funds in the plan as well. 

HSA is more auspicious to an employee because once it is made available to them, it can be accessed and used for life. HSA therefore belongs to the account holder. As an account holder of an HSA, you will be able to continue to access both the plan and its funds wherever you go. The benefit of having ownership of an HSA makes it a much more versatile, convenient and flexible savings plan than FSA with even more advantages.

First, in addition to being able to take the plan wherever you go, funds in the account will also roll over to the following year, so you don’ t have to worry about “using it or losing it.” Second, as an account owner you also have the option to invest tax-free funds from your HSA however you wish — meaning that you can continue to reap potential, additional financial advantages from the plan, long-term.  

Essentially, HSAs allows their owners a great deal more freedom and financial advantages. You can grow your funds in your account to cover future healthcare costs or as a way to augment your savings for retirement.