HSA or FSA: Which is Better?

By:  Vanessa Craddock, Federal Benefits Specialist

Published: October 2020

Would you like an easy way to save money on your healthcare expenses?

By now, many Federal employees have heard of the various medical accounts they can use to save money, but have no idea which offers what and saves them the most. Let’s take a look at the two popular choices: Health Savings Accounts vs. Flexible Spending Accounts, and determine which one is best for you.

An HSA is a Health Savings Account, and an FSA is a Flexible Spending Account. Both have much in common. They are both designed to give you better control of the money spent on your healthcare. They both also allow you to save money in a tax-free account that can be used to cover qualified out-of-pocket expenses. However, depending on your Federal health insurance plan and your medical needs, one type may be better than the other.

For the FSA, you may enroll as long as your FEHB plan is not a High Deductible Health Plan. Participants choose either the Health Care Flexible Spending Account (HCFSA) or Dependent Care Flexible Spending Account (DCFSA) or both. You must also fund the accounts. Your pre-tax contribution amount will have an established limit each year ($2,750 for the Healthcare Flexible Spending Account, and $5,000 for the Dependent Care Flexible Spending Account 2020). You must enroll each year on the website www.fsafeds.com, and decide the amount you choose to contribute. As you incur eligible expenses during the year and pay out-of-pocket, you will be reimbursed by the account. All eligible expenses are listed on the website, and various ways to receive reimbursement must be chosen. The HCFSA must be used by December 31 of each year, and the DCFSA by March 15. Only $550 or less left in the HCFSA can be rolled into the next year (for 2021). These accounts are not portable.

For the HSA, you must be enrolled in a High Deductible Health Plan. The HSA is funded by the FEHB plan (through a portion of your premium), but participants may also make voluntary contributions up to a certain annual limit. HSAs have the following tax advantages: contributions are not taxed, withdrawals for qualified medical expenses are not taxed, and these accounts earn interest and investment earnings which are not taxed. Additionally, these funds may roll over year to year. At age 55, you can contribute an additional $1,000 per year as catch-up contributions and at age 65, you can use the HSA for non-medical expenses, and the money is treated as taxable income with no penalty. The HSA is yours to keep, whether you resign, or retire or change FEHB plans.

One last HSA benefit: an employee may have an HSA and an FSA if enrolled in an HDHP. However, they can only enroll in a special type of FSA called a Limited Expenses Flexible Spending Account. This is used for eligible dental and/or vision care expenses only.

Without a doubt, the HSA offers greater flexibility. You get tax-free savings, generally lower premiums, and a long-term savings account that earns interest. Remember, however, an HSA requires you to have an HDHP and if you worry about having to pay a higher deductible, and higher out-of-pocket expenses when you are ill, then an HDHP may not be the right fit.

Ms. Craddock has been an instructor with NITP since the year 2000. She started her career with the Social Security Administration before moving to the US Office of Personnel Management. At OPM, she worked as a Certified Federal Benefits Specialist, trainer, course developer and manager, and supervisor of 20 employees for adjudicating retirement claims. After more than 25 years of experience in the Federal Benefits Administration, she retired and now continues her work as an instructor, providing Federal benefits training nationwide, for live events and via webinars.