Similar initials. Different rules for your money.
“Health spending account” is a broad phrase. In the United States, the main arrangements to understand are the Health Savings Account (HSA), health Flexible Spending Arrangement (FSA), and Health Reimbursement Arrangement (HRA).
| Question | HSA | Health FSA | HRA |
|---|---|---|---|
| Who funds it? | You, an employer, or others, within your limit | Usually payroll elections; employer contributions possible | Employer only |
| Who controls the arrangement? | You own the account | Employer-sponsored benefit | Employer-funded reimbursement benefit |
| Unused money | Rolls forward; stays with you when jobs change | Generally use-or-lose, with permitted plan exceptions | Rollover and continued access depend on the plan |
| Key requirement | HSA contribution eligibility | Employer offers the benefit; enroll under plan rules | Employer offers an eligible arrangement |
HSA: savings you can use now or later
An HSA lets an eligible person set money aside with federal tax advantages for qualified medical costs. Eligible personal contributions may be deductible; employer contributions generally are excluded from income. Earnings and qualified withdrawals can be federally tax-free. The account is separate from health insurance—it does not replace coverage or pay every bill.
You generally need HSA-compatible coverage, no disqualifying other coverage, no Medicare enrollment, and must not be claimable as someone else’s tax dependent. A general-purpose FSA or HRA, including certain coverage through a spouse, can interfere with eligibility. Limited-purpose arrangements may be compatible.
Unused HSA funds remain yours. Some providers offer investment options; compare fees, minimum cash balances, and risk before investing money you may need soon.
HealthCare.gov: HSA basics ↗ · IRS: eligibility and employer benefits ↗
2026 contribution limits
The general HSA ceiling is $4,400 for self-only coverage or $8,750 for family coverage. Eligible people age 55 or older may add a $1,000 catch-up. Employer contributions count toward the same limit. Eligibility by month, shared family limits, and other rules can reduce what you may contribute. A spouse’s catch-up must go into that spouse’s own HSA.
What can these arrangements pay for?
Subject to the account and plan rules, common qualifying costs include:
- Medical deductibles, copayments, and coinsurance.
- Eligible dental treatment, eye examinations, eyeglasses, and contact lenses.
- Prescription medicines, qualifying over-the-counter medicines, menstrual-care products, and medical supplies.
- Eligible mental-health treatment, diagnostic testing, and medically necessary equipment.
General wellness purchases, vacations, ordinary toiletries, and cosmetic procedures generally do not qualify merely because they feel health-related. Some items require medical documentation. An eligible expense under tax law can still be restricted by a particular employer plan.
Eligible family expenses can include a spouse and certain dependents, but the definitions differ from simply being listed on a health insurance policy. Verify the account’s dependent rules.
IRS: medical and dental expense categories ↗ · IRS: account-specific eligibility, OTC medicines and menstrual care ↗
Health FSA: plan around expenses you expect this year.
A health FSA generally lets an employee elect pre-tax payroll contributions for eligible out-of-pocket medical expenses. For plan years beginning in 2026, employee salary-reduction contributions are limited to $3,400; a plan may set a lower maximum. Employer funding can follow different rules.
The full annual election is generally available for eligible expenses during the coverage period even before all payroll deductions have occurred. The expense must be incurred while covered, and claims deadlines still apply.
Unused funds generally are forfeited. An employer may offer either a limited carryover or a grace period of up to 2½ months, but not both for the same health FSA. A claims-submission “run-out” period is different from extra time to incur expenses. Ask what happens if employment ends.
A health FSA generally cannot pay insurance premiums. A dependent-care FSA is a separate benefit for qualifying care expenses, not an account for medical bills.
HealthCare.gov: how health FSAs work ↗ · IRS: 2026 FSA limit ↗
HRA: your employer reimburses eligible costs.
An HRA is funded by the employer rather than employee salary deductions. It reimburses eligible costs tax-free within the arrangement’s rules. Some HRAs can reimburse qualifying insurance premiums; others are designed for narrower costs. Unused amounts and access after leaving employment depend on the plan. An HRA is not automatically a personal savings balance you can take with you.
HSAs, Medicare, and retirement
Medicare enrollment generally stops eligibility for new HSA contributions, including employer contributions. Existing HSA money remains available for qualified expenses. Retroactive Part A coverage can create excess contributions, so coordinate your stop date before enrolling.
After the HSA owner reaches 65, certain Medicare premiums can qualify, but Medigap premiums generally do not. Other premium exceptions include qualifying COBRA, unemployment coverage, and age-limited qualified long-term-care premiums. Ordinary premiums generally are not eligible.
A nonmedical HSA withdrawal is generally taxable and, before 65, can incur an additional 20% tax unless an exception applies. At 65 the additional tax ends, but nonmedical withdrawals remain taxable.
Keep a receipt, even when a debit card works.
Card approval does not establish tax eligibility. Keep itemized receipts and evidence that expenses were not reimbursed elsewhere or claimed as an itemized deduction. HSA expenses generally must arise after the account was established.
IRS Publication 969: HSA distributions, premiums, Medicare and records ↗ · IRS Form 8889: contributions, eligibility and reporting ↗
What should you ask before enrolling?
- Which arrangement do I have, and am I eligible to contribute?
- What are the plan-year limits, deadlines, and carryover rules?
- Could my spouse’s coverage affect HSA eligibility?
- Which family members and expenses can be reimbursed?
- What happens when I change jobs or enroll in Medicare?
Recent HSA law changes → · Medicare enrollment timing → · Planning for retirement health costs →
General education, not individualized tax, legal, investment, or rollover advice. Reviewed October 16, 2026. Annual limits are dated and do not update automatically. Confirm your situation with the plan administrator, a qualified tax professional, and an appropriately licensed investment professional. LI4W’s insurance services do not include managing a securities portfolio.