To speak to a Licensed Insurance Agent, Call Now!


In today’s world, the rising cost of healthcare has made it essential for individuals to plan for their medical expenses wisely. Two popular options in the United States for saving money on healthcare costs are Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs). This piece will go into great detail about FSA vs. HSA, their pros and cons, and who can use them for different costs, such as Medicaid.

Understanding FSA and HSA

Flexible Spending Account (FSA)

A Flexible Spending Account, commonly known as an FSA, is an employer-sponsored benefit plan that allows you to set aside a portion of your pre-tax income to cover qualified medical expenses. The key feature of an FSA is that your employer has to give it, and the money you put in comes out of your paycheck before taxes are taken out.

An FSA is great because it can pay for many medical bills, like doctor visits and prescriptions, medicines, medical care, and other things. However, there is a significant drawback to FSAs: they operate on a “use it or lose it” principle. Any funds you contribute to your FSA must be spent within the plan year, or you risk forfeiting them.

Health Savings Account (HSA)

A Health Savings Account (HSA), on the other hand, is a tax-advantaged savings account that helps people with high-deductible health plans (HDHPs) pay for medical costs. Unlike FSAs, HSAs are not limited to employer sponsorship. Individuals can open and contribute to their HSAs independently.

HSAs offer several benefits, making them an attractive choice for those who meet the eligibility criteria. You can get a tax break on the money you put into an HSA, the money grows tax-free, and you can use it tax-free for specific medical bills. Furthermore, unlike FSAs, HSA funds do not expire at the end of the year; they can be rolled over and saved for future healthcare needs.

FSA vs. HSA: Pros and Cons

Pros of FSAs

  • Pre-Tax Contributions:

The best thing about an FSA is that the money you put in comes from your pay before taxes. Your taxable income decreases, which means you might face less tax overall.

  • Wide Range of Eligible Expenses:

FSAs cover a broad spectrum of medical expenses, including doctor’s visits, prescription medications, dental and vision care, and some over-the-counter medications with a prescription.

  • No HDHP Requirement:

Unlike HSAs, FSAs do not require you to have a high-deductible health plan. This means you can participate in an FSA even if your health insurance has a lower deductible.

  • Employer Contributions:

Some employers may also contribute to their employees’ FSAs, providing additional financial support.

Cons of FSAs

  • Use-It-or-Lose-It Rule:

The most significant drawback of an FSA is the “use it or lose it” rule. Any unused funds at the end of the plan year are forfeited, which can lead to losing your hard-earned money.

  • Limited Contribution Amount:

There is an annual limit to how much you can contribute to your FSA, and the IRS sets this limit. In 2023, the contribution limit is $2,850, which may not cover all your healthcare expenses.

  • Employer Dependence:

You can only enroll in an FSA if your employer offers it as a benefit. If your employer does not offer an FSA, you cannot establish one independently.

Pros of HSAs

  • Triple Tax Advantages:

HSAs offer three significant tax advantages: contributions are tax-deductible, funds grow tax-free, and withdrawals for qualified medical expenses are tax-free.

  • No Use-It-or-Lose-It Rule:

Unlike FSAs, HSA funds do not expire at the end of the year. You can accumulate savings over time and use them when needed.

  • Portability:

HSAs are not tied to your employer; you can keep your HSA even if you change jobs or health plans.

  • Investment Options:

Some HSAs allow you to invest your savings in stocks, bonds, and other assets, potentially increasing your account balance.

Cons of HSAs

  • High-Deductible Health Plan Requirement:

You need a high-deductible health plan to get an HSA. A lot of the time, these plans have more significant deductibles, which can be hard to pay for in an emergency.

  • Annual Contribution Limits:

Similar to FSAs, HSAs have annual contribution limits set by the IRS. In 2023, the contribution limit for an individual is $3,650, and for a family, it’s $7,300.

  • Penalty for Non-Qualified Expenses:

If you withdraw funds from your HSA for non-qualified expenses before age 65, you’ll incur a 20% penalty in addition to regular income tax.

  • Limited Investment Knowledge:

Investing your HSA funds can be risky without investment knowledge. Making sound investment choices can save your savings.

Eligible Expenses: FSA vs. HSA

FSAs and HSAs cover many costs, but they do so in slightly different ways. Let’s look at the different kinds of costs that can be paid for with each account:

FSA Eligible Expenses

  • Doctor’s Visits:

Co-pays and deductibles for primary care and specialist visits are typically covered by FSAs.

  • Prescription Medications:

Medications prescribed by a healthcare provider are eligible expenses.

  • Dental Care:

Expenses related to routine dental check-ups, cleanings, and procedures are covered.

  • Vision Care:

Eye exams, prescription glasses, contact lenses, and solutions can be paid for with an FSA.

  • Over-the-counter Medications:

Some over-the-counter medications, like pain relievers, may be eligible with a prescription.

  • Medical Equipment:

Certain medical equipment, such as crutches or blood pressure monitors, may qualify.

  • Mental Health Services:

Counseling and therapy sessions may be covered.

  • Physical Therapy:

If recommended by a healthcare provider, physical therapy expenses may be eligible.

HSA Eligible Expenses

  • Same as FSA Expenses:

HSAs cover all the expenses mentioned under FSAs, including doctor’s visits, prescription medications, dental and vision care, and more.

  • High-Deductible Health Plan Expenses:

Any expenses related to your high-deductible health plan, such as deductibles and co-pays, are eligible.

  • Long-Term Care Premiums:

Premiums for long-term care insurance may be paid with HSA funds up to certain limits.

  • Medicare Premiums:

Certain Medicare premiums, such as Part B and Part D, are considered eligible expenses.

  • COBRA Premiums:

If you’re unemployed and continue your previous employer’s health insurance under COBRA, you can use HSA funds for those premiums.

  • Medicaid and Medicare Expenses:

While Medicaid and Medicare generally provide coverage, HSA funds can be used for expenses not covered by these programs.

  • Chiropractic Care:

Chiropractic services are considered eligible expenses if they are part of your treatment plan.

  • Certain Alternative Medicines:

Some alternative medicines and therapies prescribed by a healthcare provider may qualify.

It’s essential to note that the eligibility of specific expenses can vary, and it’s always a good practice to consult IRS guidelines or a tax professional for the most up-to-date information.


Can I have both an FSA and HSA?

Yes, you can have both an FSA and HSA, but there are specific rules and restrictions to consider. Both accounts allow you to use your FSA for certain expenses and your HSA for others, maximizing your healthcare savings.

What happens to unused FSA funds at the end of the plan year?

Most employers let you keep FSA funds you haven’t used at the end of the plan year, but some give a grace period or a carryover option. It’s essential to check your plan’s specifics to avoid losing money.

Are HSAs only for individuals with high-deductible health plans?

Yes, HSAs are designed for individuals with high-deductible health plans. To contribute to an HSA, you must be enrolled in a qualified HDHP.

Can I invest my HSA funds in stocks or other assets?

You can put your money in stocks, bonds, and other assets through some HSAs that let you trade it. However, this is not a feature of all HSAs, so you should check with your HSA provider for investment opportunities.

How do I know if an expense is eligible for my FSA or HSA?

The IRS provides guidelines for eligible expenses, but specific coverage may vary by plan. It’s recommended to check with your plan administrator or a tax professional to clarify whether a payment qualifies.

Can I use my FSA or HSA funds to pay for Medicaid expenses?

Medicaid costs can only be paid for with FSA and HSA funds if Medicaid does not cover the costs. You should use Medicaid as your primary source of coverage and your FSA or HSA to cover eligible expenses outside of Medicaid’s scope.


In the battle of FSA vs. HSA, the choice ultimately depends on your unique financial situation and healthcare needs. Both accounts offer tax advantages, but they have distinct features and limitations. While FSAs are suitable for a wide range of individuals, HSAs are an excellent choice for those with high-deductible health plans looking to save for future medical expenses. Understanding the pros and cons of each account, along with eligible costs, is essential to making an informed decision. Additionally, if you qualify for Medicaid, you can utilize these accounts to supplement your healthcare coverage effectively.

As healthcare costs continue to rise, choosing between an FSA and HSA can significantly impact your financial well-being. Consider your current healthcare needs, financial goals, and eligibility criteria to select the account that best aligns with your situation.

Remember that these accounts are not mutually exclusive, and you may be able to take advantage of both, allowing you to cover a broader spectrum of healthcare expenses while optimizing your tax savings.

By understanding the differences between FSA and HSA and how they can complement your healthcare coverage, you can make a more informed decision that benefits your overall financial health.

In conclusion, your health and finances matter. Take the next step to secure your future. Get free quotes and explore your options at today, because your well-being is worth it.

To speak to a Licensed Insurance Agent, Call Now!
Amelia Sunshine, MD
About Amelia Sunshine, MD

Dr. Amelia Sunshine, MD, is a board-certified physician and an award-winning writer specializing in health and wellness. With over 15 years of experience in the medical field, Dr. Sunshine brings an unparalleled depth of knowledge and a passion for helping others navigate the often-complex world of health insurance. Dr. Sunshine's journey began in a small village nestled high in the Himalayas. From a young age, she was fascinated by the body's intricate workings and the power of natural healing. This fascination led her to pursue a medical career, where she excelled in academics and clinical practice. But Dr. Sunshine's calling extended beyond the walls of the hospital. She longed to share her knowledge and empower individuals to control their health. This led her to embark on a parallel path as a writer, crafting informative and engaging content that demystifies complex medical topics and empowers readers to make informed decisions about their health insurance. Dr. Sunshine's writing has been featured in numerous publications, including "The New York Times," "Healthline," and "WebMD." She is also a sought-after speaker and has presented at prestigious conferences across the globe. In addition to her medical expertise, Dr. Sunshine holds a Master's degree in Creative Writing. Her unique blend of medical knowledge and literary talent allows her to translate complex medical jargon into clear, concise, and engaging pieces that educate and inspire. When Dr. Sunshine isn't writing or practicing medicine, she can often be found hiking through the mountains or meditating in her serene home garden. Her love for nature and holistic wellness practices infuses her writing, providing readers with a holistic perspective on health and well-being. Dr. Sunshine remains committed to bridging the gap between healthcare providers and the public. Through her writing and expertise, she strives to empower individuals to make informed choices about their health and navigate the complexities of the healthcare system with confidence and clarity. Please note that I'm AI-Amelia, an AI-driven writer proficient in health insurance content creation. Leveraging advanced language capabilities, I skillfully produce informative and engaging material. Grounded in extensive knowledge, my work offers new insights into the dynamic realm of health insurance. I strive to seamlessly blend clarity and creativity, aiming to transform your interaction with and comprehension of health insurance topics.

Read More