Next to Medicare, the most confusing aspects of an HSA’s relationship to another product or program revolve around Health FSAs.

A Health FSA is an employer-sponsored program that allows employees to elect to receive a portion of their compensation in the form of pre-tax contributions to an account out of which they can draw funds tax-free to pay for certain health-related expenses. This brief description sounds a lot like an HSA, though Health FSAs and HSAs differ in many respects:

Health FSA


Participant forfeits unused funds back to the employer (though an October 2013 change permits an employer to allow participating employees to roll over up to $500 per year).

Unused funds are available year after year without limit for future use.

Participant is locked into an annual election.

Accountholders can vary their contributions throughout the year and even until tax day following each tax year.

All contributions are through pre-tax payroll.

Accountholders can make pre-tax payroll or personal contributions.

Balances do not earn interest and cannot be invested.

Balances earn interest and can be invested.

Participation is limited to employees whose employer offers the program.

Anyone who meets eligibility requirements can participate.

Participants must substantiate expenses at time of purchase.

Substantiation is required only if a participant’s personal income tax return is audited.

Participants are not required to make additional tax filings.

Accountholders must complete a form on personal tax return.

Participants can spend the entire annual election at any time.

Accountholders can spend no more than the current account balance.