6 thoughts on “Which Is Better HSA or FSA?”

  1. Hello,

    My employer offers a medical plan with an HSA and another with an FSA. However, the plan with the HSA has much higher overall deductibles (for a family, $3000 vs $750 for the plan with the FSA), and a much higher out-of-pocket limit for the plan ($6850 for the HSA plan vs $3000 for the FSA plan), as well as a higher annual premium (approx 4% higher). Most of the other benefits are very similar. In your article you mention that an HSA is almost always a better option than an FSA. In light of the differences in the plans available to me, what guidelines can you offer to help me decide between the two?
    Thank you.

    • HSA is almost always better than FSA if all other things are equal. In your case, the other things are not equal. As you have discovered, HSA plans come with what are called High Deductible Health Plans (HDHP). You’ve also discovered that higher deductibles mean lower premiums. Guidelines for choosing between HSA and FSA, and HDHP and standard health plans would be a whole article in itself (thanks for the idea). In the meantime, what you do is this: Compute what each plan would cost for the entire year, under all the different scenarios, and then choose the one that is cheapest based upon your family’s most likely outcome.

      For each calculation you need: monthly premium x 12 + expenses (100% at first, then 80% after deductible, then 100% after out of pocket maximum) – estimated tax savings for HSA or FSA.

      For example:

      • What would the annual cost be for each plan if you had $6850 in expenses? (That’s the highest out of pocket limit)
      • What would the annual cost be if you had no annual expenses (maybe wishful thinking but important to see)
      • What would out of pocket before $3,000 (highest deductible)

      And so on. If you don’t want to do all the work, make an educated guess as to how things usually go for your family and just analyze that.
      When you are doing your calculations, be sure to include things like approximate savings you’ll get for the HSA and/or FSA.

      There can be situations that make some calculations unnecessary. For example, I have cancer, so the only thing I have to calculate is the total cost of the out of pocket maximum scenarios. If you and your family are healthy, then you are less likely to actually hit the out of pocket maximum.

      Only you can make the right choice for your family, but your goal is always the lowest annual cost.

  2. Great article, although I would point out that your generalization about an HSA/FSA having identical eligible expenses is inaccurate. Though they are governed by the same document (IRS Publication 502 as you mentioned) there are some discrepancies between the two. One major one, is the ability for the FSA to pay for childcare (daycare). You cannot pay for childcare from a health savings account.

    Other than that, I loved your take on the comparison between the two account options. I work for a national HSA administrator and am obviously a huge proponent of health savings accounts, so naturally I loved your nod to the HSA. I completely agree that if your insurance policy is HSA-qualified, the HSA is hands-down the better option in almost every scenario.

    • Although there is also a flexible spending account for child care, that is different than a flexible spending account for health care. What you are thinking of is a Dependent Care Flexible Spending Account, and those funds are separate from any Health Care Flexible Spending Account.

      Thanks for the comment.


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