Making Sense of HSAs and FSAs

With family health insurance premiums rising 297% since 2000, averaging over $25,000 annually, some employees are feeling the squeeze. Deductibles, too, have jumped nearly 50% over the last decade, further increasing out-of-pocket expenses. In this environment, understanding and using Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) can help families take more control of their healthcare finances.

What are HSAs and FSAs?

HSAs and FSAs are special accounts designed to help manage medical expenses.

To have an HSA, you must be enrolled in a high-deductible health insurance plan (HDHP). You contribute to the account with pre-tax dollars. Employers can also choose to contribute. Funds roll over from year to year.

FSAs are usually employer-sponsored accounts. You contribute pre-tax dollars through payroll deductions. However, the funds in these accounts must typically all be used within the plan year unless your employer offers a grace period or limited rollover.

Both accounts allow you to use pre-tax dollars to pay for qualified medical expenses, such as copays, prescriptions, or over-the-counter medications. The one that may be best for you can depend on many factors.

Key Differences Between HSAs and FSAs

Feature	HSA	FSA
Who owns the account?	You	Your employer
Contributions	You and your employer	You (via paycheck deductions)
Funds roll over at year-end?	Yes	Sometimes (depends on employer rules)
Investment options	Yes	No
Portability (can you take it with you?)	Yes	No
Required Health Insurance Plan?	Yes, HDHP	No

Contribution Limits

For 2025, the IRS allows individuals to contribute up to $4,300 and families up to $8,550 to an HSA. People over 55 can contribute an extra $1,000 annually. The FSA has a contribution limit of $3,300 ($6,600 for households).

Why These Accounts Matter More Than Ever

Rising premiums and deductibles mean Americans are shouldering more healthcare costs than ever. Since 2000, workers’ out-of-pocket costs for health insurance have nearly quadrupled. Today, it takes over five weeks of full-time work to pay the employee share of premiums, and this is before a single doctor's visit. Moreover, deductibles for families can exceed $3,700, and many copays do not go into effect until these deductibles are met.

Employers are also increasingly shifting healthcare costs to workers through narrower provider networks, more prior authorizations, and tiered drug pricing systems. That’s where HSAs and FSAs come in. By allowing workers to set aside pre-tax money, these accounts help manage healthcare costs and create a strategy for expected and unexpected expenses.

Real-Life Scenarios Where HSAs and FSAs Help

• Having a Baby: New parents can face an increase in health-related costs, ranging from prenatal care and delivery to postnatal checkups and baby essentials. An FSA can help cover many of these expenses with pre-tax funds, whereas an HSA can carry over unused funds for future pediatric visits.
• Job Change: Moving to a high-deductible plan may make you eligible for an HSA, and your HSA funds remain yours even if you switch employers or retire, making it a flexible long-term tool.
• Chronic Illness Diagnosis: Copays, prescriptions, and specialist visits add up quickly. An HSA or FSA can manage the blow, as you’ll have saved money in the account to pay for those larger costs. And with an HSA, your saved money could be growing with investment options (available with some plans) until you need it.
• Caring for Aging Parents: From prescriptions to home health aides, caregiving costs can be significant. FSAs can help cover some expenses, and for those with HDHPs, an HSA provides a long-term strategy for health-related caregiving costs.

Understanding how HSAs and FSAs work and using them effectively can make a meaningful difference during life’s most important transitions. If you haven’t explored these options, now may be the time to start.