Paying For Healthcare – Using FSA, HSA, and HRA
Healthcare is expensive – very expensive. Struggling with healthcare costs is one of the biggest sources of financial, and mental, stress for tens of millions of people every year.
However, there are some arrangements that can make the “sting” of healthcare costs a little easier to handle. The flip side is that there are several programs that can overlap – which can sometimes make understanding healthcare expenses even more confusing.
This lesson will help make sense out of 3 of the most common types of accounts you will encounter: Flexible Spending Accounts (FSA), Health Savings Accounts (HSA), and Health Reimbursement Arrangement (HRA).
Flexible Spending Accounts (FSA)
A Flexible Spending Account is a job perk offered by many employers to help their employees cover “qualified” medical expenses. An FSA gets funded similarly to a 401(k) account – withholdings from your paycheck each period, which get deposited into a separate FSA account.
These withholdings are pre-tax – meaning you do not pay any income tax on these withholdings. This effectively gives you a savings boost based on whatever income tax you would have paid on your earnings.
Also like a 401(k), many employers will “match” your contributions to your FSA account (up to certain limits, which vary by company). As of 2026, you can contribute up to $3,400 to an FSA account (this cap increases each year based on inflation), which can be even more if your employer offers any matching funds.
Spending FSA Funds
If you have an FSA account, you will normally be issued a debit card you can use on any “qualified” medical expense. This can be quite broad – any “medical equipment” (including things like bandages, disinfectants, glasses, ect), dental work, most forms of therapy, and medicine prescribed by a doctor can qualify, and does not require any prior authorization from your employer to spend the funds.
You can also use FSA funds for medical expenses for your spouse or children – not just yourself.
The main medical expense you can NOT use an FSA to pay for is health insurance premiums.
Use It Or Lose It
The biggest downside to FSA funds is that they are generally “use it or lose it” – if you do not use the funds by the end of the year, they disappear (some employers offer a VERY limited roll-over to the next year).
The reason they force you to “Use it or Lose It” is that these funds are supposed to be used for medical expenses – not pile up forever. Especially with employer matching, even if you are not sick they want you to seek out and take advantage of preventative medicine (regular doctor check-ups, dental exams, eye exams, therapy sessions, ect) to keep you healthy.
Leaving Your Job
FSA accounts are tied to your employer – this means if you leave your job, you also lose your FSA (and any money in it). There is usually a grace period after you leave a job where you can still spend the funds before they expire – but it can be an important consideration on timing an exit.
Health Savings Accounts
Health Savings Accounts (HSA) is another type of account used to set aside money for medical expenses. Like an FSA, you make contributions to the HSA account tax-free (contributions are deducted from your taxable income – giving an immediate savings boost). HSA contributions have higher limits than FSA – as of 2026, the HSA contribution limit is $4,400 for an individual, or $8,750 for families.
HSA programs have 2 main differences with FSA accounts: you need a certain kind of health insurance to qualify for it, and the funds do not expire at the end of the year.
Qualifying for an HSA
HSA accounts are only offered if you have a so-called “high deductible” health insurance plan – where you need to have a lot of out-of-pocket expenses before your insurance kicks in. While you might have a plan like this through your employer (and they might offer some matching contributions as well), this means you can also get a Health Savings Account if you buy health insurance on your own – so long as your insurance plan is classified as a “high deductible plan”, you can open your own HSA.
HSA Ownership
Unlike an FSA, an HSA account is yours – even if you leave your job, you keep your HSA account (and any money in it). You can also “roll over” an HSA account from one job to another, or merge different HSA accounts together (if you have more than one from different jobs, or you already have your own). HSA funds also do not expire – any un-used savings can accumulate from one year to the next, building a bigger savings cushion over time.
Investing Your HSA
Because HSA funds carry over from year to year, the total value of an HSA account can grow into several thousand dollars fairly quickly if you do not have a lot of medical expenses. This money does not need to sit idle – you are allowed to invest HSA funds in stocks, bonds, and mutual funds (similar to an IRA account), so long as you keep some baseline cash too. These investments can help fuel additional growth of your HSA funds over time – the more you contribute, the more it can grow.
HSA and Retirement
HSA contributions can be withdrawn any time tax-free to pay for qualifying medical expenses – but they can also be withdrawn for any reason once you reach 59.5 years of age, paying only income tax on the earnings.
This makes an HSA functionally identical to a traditional IRA account for retirement planning – if you never get sick enough to significantly deplete your HSA, it is just another part of your retirement nest-egg you can draw from in old age.
Spending HSA Funds
Spending from an HSA account is almost identical to an FSA – you will almost always be issued a debit card, and you can use it to pay for any of the same “qualified” medical expenses. Like an FSA, you cannot use an HSA to pay health insurance premiums.
Health Reimbursement Arrangement (HRA)
Health Reimbursement Arrangement (HRA) are another type of employer-provided healthcare cost assistance program. Unlike HSA or FSA accounts, you must pay any medical expenses first – then your employer will reimburse you up to your HRA limit for those expenses. These “reimbursements” are tax-free.
An HRA is not an “Account” like a FSA or HSA – you will not get a debit card, and the funds your employer sets aside for the HRA are not available to you until you request a reimbursement for an expense you already paid for. This means the employer has a wide range of things they can choose to, or choose not to, cover – making HRA funds a lot more limited than a FSA or HSA.
The flip side to this is that in some cases an HRA can be used to cover your health insurance premiums – unlike FSA or HSA accounts. This is the primary advantage of an HRA – directly offsetting the cost of paying for health insurance.
How much exactly your company will reimburse differs form company to company (and the size of your company), but there are three main types of HRA – Qualified Small Employer Health Reimbursement Arrangements, Individual Coverage HRA, and Excepted benefits HRA.
Qualified Small Employer Health Reimbursement Arrangements (QSEHRA)
This type of HRA is used exclusively by small businesses and is a simple type of HRA that can be used to both get reimbursed for medical expenses or pay health insurance premiums. This gives employees options to either buy health insurance (and use the HRA to pay for some of the premiums), or use their HRA for medical expenses directly (either on top of insurance they have from another source, or if they have no insurance at all).
Individual Coverage HRA (ICHRA)
This type of HRA is offered by larger exclusively to pay health insurance premiums, purchased either through a group plan offered by the employer themselves or even on the health insurance marketplace. Unlike other types of HRA, it cannot be used for other medical expenses – it can only go towards paying premiums.
Excepted Benefit HRA (EBHRA)
This is the opposite of an ICHRA – these funds can only be used to reimburse for medical expenses, but cannot be used to pay for health insurance premiums directly (although sometimes it can be used for vision/dental insurance).
The Last Word
Paying for healthcare can be extremely expensive – but there are some tips and tricks to make the sting a little less painful. Utilizing an FSA can keep you healthy and even get some bonus employer match, an HSA can be part of a long-term retirement strategy (as well as help with medical bills), and an HRA can help pay for your premiums to keep your monthly costs down.
If your employer offers any of these options (or if your health insurance offers an HSA option), take advantage of the offer!