Health care can be expensive.

And costs always seem to be rising.

You want an affordable way to manage your health care expenses. And save for your future health care needs.

Spending accounts offer a flexible way to meet your health care costs. Some can also potentially lower your taxable income.

There are several different kinds of health spending account. Each has its own distinct benefits. Check with your employer to see what they offer.

Types of Spending Accounts

Use this chart to compare your options so you can make the right choice for you and your family.

*In some cases, your employer may contribute.

The IRS sets different limits on contributions to HSAs and FSAs. Visit irs.gov for more information.

Here are some more details about the different types of spending accounts.

Health Savings Accounts (HSAs)

How They Work

HSAs work like a bank account with extra benefits. You can use it:

• As a spending account to pay for qualified medical expenses now
• As a savings account to pay for future qualified medical expenses

HSAs are like Individual Retirement Accounts (IRAs) for qualified medical expenses—you can set aside money for qualified expenses that might come up in retirement.

You choose how much money to put in your HSA. And your employer may also contribute.

You can only open an HSA if you have a Qualified High-Deductible Health Plan (QHDHP) and meet other eligibility requirements. A QHDHP may make sense if you’re looking for a plan with generally lower monthly premiums, a higher deductible, and coverage for a wide range of medical care.

HSA Benefits

• Your HSA savings can grow and earn interest like a savings account at your bank. You can also invest money in your HSA for longer-term savings.
• With your employer’s Section 125 Plan, money you contribute comes out of your pay before taxes, and it remains tax-free when you spend it.
• HSA funds aren’t “use it or lose it.” Your balance rolls over from year to year, earning interest along the way.
• You keep your HSA when you change jobs or health insurers — it’s your account and your money.

Consider an HSA if:

• You have or want a QHDHP.
• You are looking for ways to save for health care expenses in retirement on a pre-tax basis.
• You want a spending account where you can save money for future expenses or invest for the longer term.

Health Reimbursement Arrangements (HRAs)

How They Work

An HRA is set up by your employer. Your employer puts in a certain amount of money for you to pay copays, deductibles, and coinsurance. Your employer may also allow you to use that money to pay for dental, vision, or prescription costs.

In most cases, your HRA money will expire at the end of the year. But your employer may choose to rollover unused funds to the next plan year.

HRA Benefits

• You have funds available for the out-of-pocket expenses required to meet your plan’s deductible.
• Money your employer contributes is not included in your salary and is not considered taxable income.
• Depending on your insurer, you may be able to choose to have reimbursements from your HRA sent either to you or directly to your health care provider.

Consider an HRA if:

• You are looking for a way to manage the out-of-pocket expenses required to meet your plan’s deductible.
• You’re looking for a way to pay medical costs, as well as dental, vision, or prescription costs.

Flexible Spending Accounts (FSAs)

How They Work

Like HRAs, FSAs are set up by your employer. But unlike HRAs, FSAs let you decide how much money to set aside from your paycheck (before taxes) to pay for certain qualified expenses.

Some FSAs can be used for health care expenses. Others can be used for dependent care expenses, such as day care or home nursing.

FSA Benefits

• You have access to the full amount of money you set at the very beginning of the plan year (except for dependent care).
• With your employer’s Section 125 Plan, money you contribute comes out of your pay before taxes, and it remains tax-free when you spend it.
• You may be able to carry over money into the next year’s plan. Or you may be able to submit qualified expenses from last year to be reimbursed this year.

Consider an FSA if:

• You’re looking for a way to put aside money annually to pay medical costs, as well as dental, vision, or prescription costs.
• You want access to all of your money right away.
• You want to set aside money before taxes for dependent care.

Considering a Spending Account?

Talk to your employer’s human resources or benefits department about spending accounts. You can also check your health plan’s member website or open enrollment materials for more information.

Your employer determines what is reimbursable from your Health Reimbursement Arrangement.