Take charge of your health (and budget) with HSAs and FSAs

Published September 7, 2023

Navigating the world of healthcare acronyms can feel like swimming in a sea of alphabet soup. If the sound of “HSA" and “FSA” makes your head spin, you're not alone. But knowing the difference between an HSA and an FSA can help you make the most of your healthcare benefits to take control of your health—and your budget.

Note: this article is meant to be informational and does not take the place of tax advice. You should consider consulting a tax attorney for your specific issues and needs.

What’s an HSA?

A Health Savings Account (HSA) is a type of savings account that lets you set aside money before taxes to help pay for qualified medical expenses. This means that the money you add to your HSA will not be taxed as income. 

You can open an HSA if you have an HSA-eligible health plan. These plans are often called High Deductible Health Plans (HDHPs). HDHPs usually have lower premiums than traditional health insurance plans, but they also have higher deductibles. If you have an HSA-eligible health plan through your employer, you may be able to contribute money to your HSA from your paycheck before taxes are taken out. Your employer might also add money to the HSA for you. You can also contribute to your HSA separately from payroll deductions at an annual maximum and/or open an HSA at banks, credit unions, and other financial institutions.

HSA funds can be used to pay for:

• Deductibles: This is the amount of money you must pay out of pocket before your health insurance plan starts to pay
• Copays: This is the amount you pay for each doctor's visit or prescription
• Coinsurance: This is a percentage of the cost of medical services that you pay after you’ve met your deductible
• Qualified medical expenses: These include things like dental care, lab tests, vision care, and medications

HSA funds can’t be used to pay for:

• Health insurance premiums: This is the monthly amount you pay to keep your health insurance coverage active. Premiums are usually paid to an insurance company, but they can also be paid through an employer

What’s an FSA?

A Flexible Spending Account (FSA) is another type of spending arrangement that lets you set aside money before taxes to help pay for qualified medical expenses. This means that the money you add to your FSA will not be taxed as income. But you can’t open an FSA on your own like an HSA. To be eligible for an FSA, your employer has to offer FSAs as part of their benefits package. If they do, you'll likely be given an enrollment period when you can elect to participate and then you’ll choose your contribution amount. Once you've signed up, you'll be able to use the funds in your FSA to pay for FSA-eligible expenses throughout the year.

Like an HSA, the money can be used to pay for deductibles, copays, coinsurance, and other qualified medical expenses. But neither FSAs or HSAs can be used to pay for health insurance premiums.

What are qualified medical expenses?

Qualified medical expenses include things like doctor's visits, prescriptions, over-the-counter medications, and ambulance services. There’s a long list of eligible items like feminine hygiene products, birth control (including condoms and vasectomies), heart health tests, allergy tests, ovulation predictor tests, pregnancy tests, sunscreens, and more. You can find a complete list of qualified medical expenses on the IRS website.¹

What’s the difference between an HSA and FSA?

HSAs and FSAs are great ways to pay for qualified out-of-pocket healthcare expenses. The two allow you to save money for yourself, your spouse, or dependents. And both accounts allow for contributions that aren't considered income, so they are free from income taxes.

But the biggest differences between an HSA and FSA are:

• HSAs are owned by you, but FSAs are owned by your employer. This means that if you switch jobs, you take your HSA funds with you. But with an FSA, you’ll lose any money you haven’t spent
• HSA funds can be rolled over from year to year, but FSA funds are usually "use it or lose it." This means that if you don't spend all your FSA funds in the plan year, you’ll lose them. But with an HSA, there’s no time limit on when you have to spend the money
• HSAs are only available to people who have HDHPs, but FSAs can be offered by employers no matter the type of health plan. In exchange for paying more out of pocket with an HDHP, you can save money on taxes by contributing to an HSA. And because FSAs don't have restrictions on what kind of health plan you have, you can save money by contributing to one even if you have a traditional plan

Are tests on questhealth.com covered by HSA/FSA?

Quest offers a large section of HSA- and FSA-eligible tests to help you stay on top of your health because taking control of your health and looking after your body is essential. That’s why questhealth.com offers a range of lab tests that put you in charge. Browse 100+ lab tests, including those for allergies, cardiovascular health, sexual health, and more.

No doctor visit is required to buy your own lab test at questhealth.com. PWNHealth and its affiliates review your purchase to ensure it is medically appropriate before submitting the test order for processing. PWNHealth also reviews your test results and will contact you directly if they require prompt attention. Included in each purchase is the option to discuss your test results with an independent physician; however, you are also encouraged to speak with your primary healthcare provider.

References

1. https://www.irs.gov/forms-pubs/about-publication-502