Facing medical and healthcare costs in the United States has been a challenge for citizens. According to a KFF survey, in the past year, more than 25% of families had trouble covering medical expenses, and almost 50% have difficulty doing so. In this situation, there are two types of tax-advantaged savings accounts in the United States that allow families to pay for medical expenses. These are Flexible Spending Accounts (FSA) and Health Savings Accounts (HSA). However, it is important to understand both the tax benefits and the risks involved in having one of these accounts. In the case of FSAs, they must be employer-sponsored, with money contributed by the employee from pre-tax payroll deductions throughout the year.
It has a contribution cap, and if it is not used during the fiscal year, the leftover money is claimed by the employer and lost forever. It is true that the employer may offer a grace period, a carryover, or offer neither of these options, so the risk is considerable. On the other hand, HSAs require enrollment in a High Deductible Health Plan. They also have contribution limits, but the deposited money does not expire and accumulates year after year. Additionally, it is portable, contributions are tax-free, as is the money it generates and the withdrawals. The risk with this option is the need to pay a higher deductible before the insurance begins to cover costs.
How to deal with medical expenses in the US
Facing the costs related to healthcare in the United States is quite a challenge for citizens. According to data from a KFF survey, the past year has been especially difficult for 25% of people who had trouble covering their medical expenses, and for nearly 50% of adults who face difficulties paying for them. This poses a serious social problem, as it concerns health and the difficulty of affording it. In response to this situation, there are two alternatives in the United States.
These are two types of savings accounts with tax advantages that help families cope with these high costs. However, they also come with risks that must be considered when choosing. These are Flexible Spending Accounts (FSA) and Health Savings Accounts (HSA).
Flexible Spending Accounts (FSA)
An F.S.A. is a medical savings account that must be sponsored by the employer. This is made possible through the money the employee contributes from their pre-tax payroll deductions throughout the year.
Eligibility:
- You must have a health plan through your job to be able to have an FSA.
- The money is used to pay for eligible healthcare expenses such as copayments, deductibles, specific medications, and dental or vision care costs.
What is its risk?
This account has several limits and risks. In 2025, the maximum contribution limit that can be reached is $3,300. The main risk of this type of account is its “use it or lose it” policy. What does it consist of? The amount of money accumulated by the worker throughout the year must be spent before the end of the fiscal year. Otherwise, the remaining money will become part of the employer’s assets, losing it forever. That is why accurately estimating the amount needed for this type of medical expenses is essential: if you overestimate, you lose money, and if you underestimate, you lose tax benefits.
Can this risk be issued?
The answer is yes, but it depends solely on the employer. In this risk situation, the employer can:
- Apply a grace period. Add up to two and a half months to the deadline, allowing employees to spend funds from the previous year.
- Carryover. Allow employees to transfer $660 of those savings to their fund for the following year. The employer keeps the rest of the money.
There is also the possibility that they choose neither of these options and directly keep the unspent money at the end of the year.
Health Savings Accounts (HSA)
An HSA is a tax-advantaged savings account for medical expenses where money is contributed to cover costs such as doctor visits, prescription medications, and dental care.Eligibility:To open and contribute to an HSA, you must be enrolled in a High-Deductible Health Plan (HDHP).Definition of HDHP (2025 – According to the IRS): A health plan with an annual deductible of:$1,650 or more for individual coverage.$3,300 or more for family coverage.The contribution limits for this option are $4,300 for individual accounts and $8,550 for family accounts.
Advantages compared to the FSA
Unlike the FSA, HSA money does not expire and can roll over from year to year. This makes it easier to invest funds indefinitely. In addition, it is portable, meaning the account is yours and stays with you even if you change jobs or health plans. Tax advantages include contributions that are tax-free, interest earned is also tax-free and can be invested, and withdrawals for eligible medical expenses are also tax-free.
What is the risk?
The main risk of this type of account is the requirement to have a HDHP, which means you must pay a higher deductible before insurance starts covering costs.