fsa vs hsa

Understanding the differences between a flexible spending account (FSA) and a health savings account (HSA) can help you choose the best possible account option. Comparing FSA vs HSA is a fantastic way of learning more about them.

If you’re unfamiliar with both of these specialized tax-advantaged accounts, you may not know where to begin. Don’t worry—this brief guide can help you get caught up and moving in the right direction.


FSAs and HSAs are both employee benefit programs that can be used to help cover medical costs not covered by your health insurance. However, that’s where their similarities end and their differences begin.

While these accounts are both available to employed workers and designed for the same general purpose, they function in completely different ways. These variances can affect your potential to pay for unexpected health care emergencies.

Consequently, it’s necessary to take a deep-dive into both of these programs and discover more about them. The more you understand these healthcare-related accounts, the more confident you’ll feel when deciding between them.

Let’s begin by examining flexible spending accounts. 


An FSA is a pre-tax account that is typically offered by employers. However, self-employed workers are eligible to apply for an FSA.

When you decide to open an FSA, you must agree to deposit a certain amount or percentage of each paycheck into the account. This amount cannot exceed $2,500 over a single year. This means that you could invest about $200 each month.

Funds from this account become available when the account holder receives any type of uninsured treatment or care. Anything not covered by an individual’s health insurance plan can be paid for using an FSA.

However, you may want to schedule the majority of your appointments for October or November. Leftover funds that remain in the account expire at the end of the year. This could result in a huge financial loss for some.

However, an FSA also provides a little security and peace of mind. There are also several FSA eligible items that could be yours, tax-free with the help of an FSA.


An HSA is also a pre-tax account offered to employees. But a self-employed individual would not be able to qualify for or receive an HSA. Similarly, very small unincorporated businesses may fail to meet HSA criteria.

Those that are able to open an HSA aren’t required to put money aside each month like those with an FSA. Instead, they receive compensation for any care costs that aren’t covered by their insurance plan. However, they must pay out-of-pocket first.

This can be a significant disadvantage for those who find themselves consistently low on funds. If HSA holders don’t have enough immediate funds to pay for necessary healthcare, they may struggle to find a solution.

Fortunately, those with an HSA could choose to apply for a loan and receive almost instant funds. This money can be used to pay for medical treatments and services and the resulting compensation could be used to pay back the initial loan.

Of course, you could always choose to renew your loan instead. With a little extra cash in your pocket, you could enjoy some of the highest-quality, most needed HSA eligible items.

Still, you’ll need to weigh your priorities and make some hard decisions concerning your budget strategy. 

How Does an FSA or HSA Affect Budget Strategy?

An FSA or HSA can effect budget strategy in several key ways. If you decide to opt for an FSA, you’ll be investing a percentage of each paycheck into that account. That could potentially impact your monthly income.

If you’re paying $200 per month into the account, then you can rest easy knowing that any potential medical emergencies are insured. Any treatments, medications, or services that aren’t covered by insurance can be paid using these funds.

Still, your wallet could be a little thinner after choosing an FSA. Also, any funds that you haven’t used toward healthcare expire at the end of the year. You could put away a decent amount of money each month but never need to withdraw from it.

At the end of the year, you could be out by about $2,500. An HSA, on the other hand, is a little more straightforward.

If you decide to go with an HSA, you’ll receive compensation for any out-of-pocket medical costs you incur throughout the year. An employer can help determine the amount of total compensation available to employees each year.

With an HSA, you’ll need to have the funds to pay for your treatment before seeking compensation. This can limit your ability to afford necessary services or medications that aren’t covered by your insurance.

However, you won’t lose any money at the end of the year when you choose an HSA. You’ll also get to enjoy slightly more attractive paychecks. Unless you fall severely ill of course, in which case, you may spend all of your immediate savings on treatment.

Choose the Right Account for Your Needs

Now that pitted FSA vs HSA, you can choose the option that offers you the most benefits. You should take a moment to consider several crucial factors before arriving at your final decision.

Both of these savings accounts can significantly impact your budget strategy. When you pick an account, you’re not only committing to that savings plan. You’re also committing to that budget strategy for the foreseeable future.

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