What is the difference between an HSA and an FSA?

Health Savings Account and Flexible Savings Account

An HSA is offered by employers in conjunction with a high deductible health insurance policy. Self-employed people who have high deductible plans also can set up HSA accounts.

The employer or self-employed individual deposits all or a portion of the deductible into an HSA to cover costs until the deductible is met and the health insurance policy takes over the financial burden.

Once the account is set up, an employee can contribute additional money to the HSA via a payroll deduction from gross income. The money contributed to an HSA account is tax deductible. Interest or earnings on the money in the account is tax-free. Withdrawals used to pay for qualified medical expenses are tax-free too.

A withdrawal from an HSA can be used for a broad range of medical expenses including eyeglasses, contacts, chiropractic care and prescription drugs as well as doctor visits and hospital stays.

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