Which is Better: FSA or HSA?

1sa hsa

Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs) offer a variety of benefits to account owners. While there are some similarities in the benefits, there are some major differences. For people who are being offered these benefits for the first time it’s especially important to understand both the benefits and the implications of these accounts.

How these FSAs and HSAs the same?

Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs) are both funded with contributions that lower your taxable income. Both accounts can be used to purchase eligible health and wellness products and services, and the specific products and services that are eligible expenses are remarkably similar for both accounts. Learn more about eligible expenses.

How are they different?

Enrollment Requirements

To sign up for and actively contribute to an HSA, you must be enrolled in a qualified high deductible health plan (HDHP). With an FSA, you do not have to be enrolled in any health insurance coverage at all, let alone a specific kind of health plan.

Contribution Limits

HSA contribution limits for 2022 are $3,650 for individual coverage and $7,300 for those with family coverage. You can change your contribution amount at any time during the year.

FSA election limits for 2022 are $2,850. With an FSA, you cannot change the contribution amount once the plan year begins (with exceptions for certain qualifying events).

Carryover, Grace Periods, and ‘Use It or Lose It’

What happens to unused money in your FSA account after the plan year ends depends on your employer’s plan setup. Your plan will have one of the following options:

  • Carryover: Unused funds in your account, up to a $570 maximum, carry over to the following year.
  • Grace period: You have 2.5 months in the new plan year to use any leftover FSA funds from the previous year.
  • Use it or lose it: Any unused money in your FSA at the end of the plan year is lost.

With an HSA, account owners have rollover. They get to keep all remaining money in their account, which automatically rolls over from one year to the next.

Claims Reimbursement

For both FSAs and HSAs, you submit claims for reimbursement or use a debit card to make qualified purchases. However, with an FSA, you can only submit claims and get reimbursed within the same plan year. In other words, for an expense in March 2022, you need to submit your claim before the end of the 2022 plan year (generally on or before December 31).

With an HSA, it’s much different. You can claim any eligible expense at any time after the HSA has been opened. If your HSA started in January 2021, and you had an expense in February 2021, you can submit the claim any time after February 2021 (even in 2022, 2023, or thereafter) and get reimbursed as long as the account remains open and has enough balance to pay the claim.

Funds Availability

With an FSA, your full election amount is available on day one of the plan year. If you claim your total election amount early in the year, you will still see the deductions (divided equally) from your paycheck each pay period.

HSA owners can only use the money that is currently in their account. If the balance is $200, but they have a $500 bill, they can only use $200, or wait until the balance builds up.

Interest and Investing

FSAs do not earn interest or dividends, and the funds cannot be invested.

HSA owners earn tax-free interest on their balances and can invest their account dollars (over a certain minimum balance) to earn tax-free gains.

  FSA HSA
Health Insurance Plan Requirements

None

Qualified HDHP to open an account or make contributions

Annual Contribution Limits

$2,850 regardless of insurance or family status

2022: $3,650 with Individual coverage, $7,300 family

Unspent Funds at End of Plan Year

Carryover, roll over up to $570

Grace Period, get extra 2.5 months to spend balance

Use It or Lose It, meaning unspent funds are lost

100% rollover to next plan year, regardless of amount

Claims Reimbursement

Account funds can only be used to reimburse expenses incurred during same plan year (except during Grace Period, if applicable)

Account funds can be used to reimburse expenses incurred at any time after account opened, even years later

Funds Availability

Full amount of annual election is available to spend from first day of plan year

Can only spend actual account balance regardless of annual contribution amount

Interest and Investing

No interest and no ability to invest

Earn interest on the balance, funds can be invested


So which is better, an FSA or HSA? It depends on your special circumstances, from your health plan coverage to your health and wellness needs, to your investment strategy.

The Adventures of Captain Contributor is an employee education and engagement program developed by DataPath, Inc.