QUESTION: What is the difference between my employer’s HSA and Flex Spending Account offerings?

Both of these options are useful ways to pay for medical expenses with benefits and limitations with pre-tax dollars.
A Health Savings Account (HSA) is a pre-tax way of saving money to pay for medical expenses later. The HSA is useful for those individuals who have a High Deductible Health Plan (HDHP). The HDHP must have a minimum deductible level of $1400 for individuals or $2800 for families. You cannot establish an HSA if your health plan isn’t a High Deductible Health Plan.

An HSA is an account that is in your name. The money deposited into the HSA is not taxed when taken directly from your wages. You can also deposit money into this account from other sources. You are allowed to deposit a limited amount into your HSA annually, for 2021 the limit is $3600 for an individual and $7200 for a family. If you are over 55 years of age there is a catch-up contribution of $1000 annually.

A benefit to having an HSA account is the money is always yours to use towards medical expenses for you and your family. The annual deposits will build up over time and be used over the course of your lifetime. These accounts usually earn some amount of interest, your funds will grow if you don’t use the money immediately.

Once you turn 65 and are eligible for Medicare you are no longer allowed to put new money into an HSA. The HAS account balance is yours to keep and use as you age, but you will not be able to deposit funds into the HSA once you are Medicare eligible.

A Flex-Spending Account (FSA) is an employee benefit that allows your pre-tax wages to be put aside and used for medical spending within a fixed period of time (usually annually). You set your amount annually when signing up for the FSA. For example, if you decide to set aside $1000 in your flex-spending account, your FSA is front loaded by a third party. Your wages are used to repay that amount over the course of the year. If you need dental work done in January the $1000 is available immediately and it is then ‘paid back’ over the course of the year with pre-tax wages. This can be a useful way to pay large medical expenses prior to having the money. The issue with having an FSA comes at the end of the year if you have not spent the entire $1000. The balance left over in your FSA is kept by the third party who agreed to front that money initially. You usually have three to six months after the year is completed to request that money back providing proof of medical spending receipts. If that time has expired your balance will be forfeited.

These two accounts are very different in a couple of basic ways. An FSA is preloaded upfront and you can pay it back over the course of the year with pre-tax dollars and without interest. In this situation if you don’t ever use the loan you were given, you still have to pay the money. This FSA also requires that you be employed to be enrolled in the FSA. You cannot establish an FSA without employment.

The HSA is a way to save money in your name for expenses in the future. If you needed dental care in January, your brand new HSA would not have much money in it to pay for that service. It takes time to save money with an HSA. One way to counteract this downside is pay the dentist in January and then use the HSA at the end of the year to pay yourself back for that expense. You simply provide receipts and proof of payment and the HSA will pay you back the money you paid prior to having the full amount in the HSA.

Senior Life Matters is a community based program sponsored by Lutheran Jamestown. For questions and concerns or to reach Janell Sluga, GCMC, call us at 716-720-9797 or e-mail at