HSAs vs. FSAs: Taking Control of Rising Health Care Costs

Tax-advantaged accounts that support your health and your wealth.

With family health insurance premiums having risen 297% since 2000, now averaging more than $25,000 per year, and deductibles climbing nearly 50% in the last decade, many households are feeling the pinch¹. In this environment, Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) are valuable tools that not only help manage day-to-day medical costs but can also play a strategic role in your broader financial plan.

What Are HSAs and FSAs?

Both HSAs and FSAs are tax-advantaged accounts designed to help cover medical expenses. But they differ in how they are structured, who owns them, and how flexible they are.

Health Savings Account (HSA):

• To qualify, you must be enrolled in a high-deductible health plan (HDHP)².
• Contributions can come from you, your employer, or both.
• Funds roll over from year to year — there’s no deadline to spend them.
• HSAs are portable, meaning the account stays with you if you change jobs or retire.
• Some HSAs also allow you to invest contributions, which can provide long-term growth potential and complement retirement savings.

Flexible Spending Account (FSA):

• Generally offered through your employer.
• Funded by pretax payroll deductions (some employers may also contribute).
• Typically “use-it-or-lose-it”: funds must be spent within the plan year, though some employers allow a grace period or limited rollover.
• FSAs are not portable — if you leave your employer, the account usually ends.

Both types of accounts let you use pretax dollars to pay for qualified medical expenses such as doctor visits, prescriptions, copays, and some over-the-counter medications.

Key Differences Between HSAs and FSAs

2025 Contribution Limits

The IRS updates contribution limits each year. For 2025, the limits are:

• HSAs:
  • $4,300 for self-only HDHP coverage
  • $8,550 for family HDHP coverage
  • $1,000 additional “catch-up” contribution if age 55 or older^{2, 5}
• FSAs:
  • $3,300 annual contribution limit
  • Employers may allow limited carryover (up to $660 in 2025) or a short grace period^{4, 6}

Why These Accounts Matter Now

Health care costs have consistently outpaced wage growth, and many employers continue to shift more responsibility to employees through higher deductibles, narrower networks, or tiered prescription pricing¹.

That’s where HSAs and FSAs matter. Beyond helping manage medical costs, they also provide opportunities for tax savings and financial planning strategies. An HSA in particular can function like a “hybrid” account—part health care tool, part long-term savings vehicle.

Important Rules to Keep in Mind

• HSAs and Taxes: Withdrawals used for qualified medical expenses are tax-free at the federal level, and in most states. Non-qualified withdrawals before age 65 may be subject to income tax and a 20% penalty. After 65, non-qualified withdrawals are taxed as income but no penalty applies.
• State Differences: Some states, such as California and New Jersey, do not follow federal HSA tax rules. Always review your state’s laws.
• FSAs and Deadlines: Unless your employer offers rollover or a grace period, unused funds typically expire at the end of the plan year.

Real-Life Examples

• Starting a Family: Prenatal care, delivery, and pediatric visits can all add up quickly. FSAs may help with predictable near-term expenses, while HSAs allow funds to roll over for future needs.
• Changing Jobs: HSA funds remain yours even if you switch employers, offering flexibility during transitions.
• Managing Chronic Illness: Copays, prescriptions, and specialist visits can be significant. An HSA may provide a longer-term cushion, while FSAs help with more immediate annual costs.
• Supporting Aging Parents: From medications to home health aides, caregiving costs can be offset with pretax funds.

Strategies to Use Them Wisely

• Estimate your annual health care expenses to decide whether an HSA, FSA, or both fit your needs.
• Use online calculators to compare potential tax savings.
• Take advantage of any employer contributions.
• If available, consider HSA investment options for long-term growth.
• Reevaluate your benefits during life changes such as marriage, the birth of a child, or a new job.

Final Thoughts

Rising health care costs are challenging, but HSAs and FSAs can help you manage today’s expenses while also strengthening your family’s longer-term financial outlook. By understanding how these accounts work and where they fit into your plan, you can better prepare for both routine and unexpected medical needs.

Want help building a strategy? To see how HSAs and FSAs can fit into your family’s financial plan, schedule a consultation with a OneDigital advisor today. We’ll help you navigate the complexities of saving for the future with confidence and clarity.

Sources:
1. MoneyGeek, The Average Cost of Health Insurance in 2025 (Updated: September 18, 2025)
2. IRS Revenue Procedure 2024-25
3. IRS Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans
4. IRS Newsroom, Healthcare FSA reminder: Employees can contribute up to $3,300 in 2025
5. Thomson Reuters, IRS Announces 2025 HSA and EBHRA Contribution Limits
6. HR Executive, 4 IRS numbers HR needs to know for 2025

Investment advice offered through OneDigital Investment Advisors LLC.
OneDigital and our associates cannot provide tax or legal advice. Any tax or legal information provided is for information and educational purposes only. Please review those details with your tax and legal professionals to review your specific circumstances.
ID: 00324829