Last year, spending on healthcare grew a whopping 8.2%, reaching $5.3 trillion overall, according to the Centers for Medicare & Medicaid Services. Per person, healthcare spending hit $15,074 in 2024, with a further 7.1% increase expected in 2025.
Unfortunately, these costs will likely only grow as we age. That’s why it’s vital for us plan for these costs, tucking away as much as possible — as strategically as possible -– during our working years. There are a few ways we can do this, including using Health Savings Accounts (HSAs) for both short-term needs and long-term needs, and health care Flexible Spending Accounts (FSAs) for short-term ones.
It’s important to know the difference between these two accounts because, in general, you have to choose. You can’t use both an HSA and a health care FSA simultaneously (although if you have an FSA for dependent care expenses, they can overlap). Here’s a look at the biggest differences between these two types of accounts and how to figure out which may work best for you.
The biggest difference between a healthcare-focused FSA and an HSA: Your HSA rolls over from year-to-year while an FSA doesn’t. That means people with an FSA generally must “use the money they put in annually or lose it,” which means the smart move is to only put the amount of cash into the account you’ll spend within a calendar year. The money you put into your HSA, however, can be used throughout your lifetime, so you can contribute up to the allotted dollar limit every single year and know the money will be there when you need it. (You may also be able to invest it for growth, which isn’t an option in FSAs.)
So, why isn’t everyone jumping on the HSA bandwagon? Not everyone qualifies. To be eligible, you must have a high deductible health insurance plan. For 2026, that’s defined as a health plan with an annual deductible of no less than $1,700 for individual coverage or $3,400 for family coverage, according to the IRS.
You can get typically an HSA through your employer or you can open one on your own via a bank or credit union. Note: Even if you get the account through your employer, the account (and the funds in it) are portable, meaning you can take them with you if you change jobs. Meanwhile, eligibility for an FSA means working for an employer who offers one — you can’t open one on your own.
As we mentioned, an HSA is not only a vehicle to cover medical expenses, it’s also a savvy way to stow away cash for retirement. Unlike other investment vehicles that are taxed at various points along the way, your HSA money is always your money — tax-free! The genius of using an HSA is that you save your money pre-tax, invest it tax-free, and even withdraw it tax-free for eligible healthcare expenses. That’s why if you can afford it, you should contribute the maximum every year to your HSA.
And here’s the most exciting hack. If you don’t need to pull money from your HSA to pay for out-of-pocket healthcare expenses, you can let it grow and use other money (money on which you’ve already paid taxes) for that. Then, you save all those receipts for care and other medical expenses. And when you eventually pull the money out of the HSA, you write it off against those expenses — no matter how long ago they occurred.
As healthcare costs continue to rise, protecting the rest of your wealth becomes even more critical. For medical care, you want your first line of financial defense to be your HSA — not the money in your IRAs and 401(k)s. That’s why having a pool of money earmarked for medical expenses can spare your other accounts from taking an unnecessary hit, and help your retirement savings last longer.