Overview: Three vehicles — Health Savings Accounts, Health Reimbursement Arrangements, and Flexible Spending Accounts — each offer tax advantages for health spending, but they differ fundamentally in who owns them, who funds them, and what happens to unused balances.

High-Deductible Health Plans and HSA Eligibility

Before explaining HSAs themselves, it is essential to understand what unlocks them: a qualifying High-Deductible Health Plan (HDHP). The HDHP is the key — you cannot open or contribute to an HSA unless you are enrolled in a qualifying HDHP.

A plan qualifies as an HDHP only if it meets the IRS's minimum deductible and maximum out-of-pocket requirements for that tax year:

Requirement	Self-Only (2026)	Family (2026)
Minimum annual deductible	$1,700	$3,400
Maximum out-of-pocket limit	$8,500	$17,000

The plan must also not provide benefits before the deductible is met, with one critical exception: preventive care may be covered before the deductible at no cost-sharing. Safe harbor rules also allow pre-deductible coverage for certain chronic condition medications (insulin, statins, blood pressure drugs) and for telehealth services.

Individual HSA eligibility also requires:

Covered by a qualifying HDHP as of the first day of the month for which you contribute
No other "first-dollar" health coverage (no spouse's traditional PPO, no general-purpose FSA or HRA)
Not enrolled in any part of Medicare
Not claimed as a dependent on another's tax return

Health Savings Accounts (HSAs)

An HSA is often called "triple tax-advantaged" because it offers three simultaneous tax benefits:

Contributions are tax-deductible (or made pre-tax through payroll)
Earnings grow tax-free (interest, dividends, investment gains)
Withdrawals are tax-free when used for qualified medical expenses

This combination is unmatched by any other common savings vehicle. The account belongs to the individual — not the employer — making it fully portable. Unlike FSAs, there is no use-it-or-lose-it rule; unused balances roll over indefinitely and may be invested.

2026 contribution limits:

Self-only HDHP coverage: $4,400
Family HDHP coverage: $8,750
Age 55+ catch-up contribution: additional $1,000

Both employees and employers may contribute, but the combined total from all sources cannot exceed the annual limit.

Qualified medical expenses include: doctor visits, prescription drugs, dental and vision care, mental health services, laboratory fees, durable medical equipment, OTC medications, COBRA premiums, Medicare premiums (Parts A, B, C, D) after age 65, and qualified long-term care insurance premiums (subject to age-based IRS limits). Cosmetic procedures, gym memberships, and general dietary supplements do not qualify.

Tax consequences of non-qualified withdrawals:

Under age 65: the withdrawn amount is included in gross income AND subject to a 20% excise penalty
Age 65 or older: the withdrawn amount is included in gross income, but the 20% penalty is waived (the account functions like a traditional IRA for non-medical expenses at that point)

Health Reimbursement Arrangements (HRAs)

An HRA is an employer-owned, employer-funded account. The employee pays for qualified medical expenses and is reimbursed from the HRA. The IRS does not cap standard HRA contributions (the employer decides the annual allowance). Employees cannot contribute to an HRA.

Key distinctions from HSAs:

Ownership: The employer owns the HRA. If the employee leaves the company, unused funds stay with the employer.
Portability: HRAs are generally not portable. Certain specialized types (retiree HRAs) offer limited exceptions.
Rollover: Whether unused balances roll over is entirely at the employer's discretion — they can adopt use-it-or-lose-it rules or allow carryovers.
Investment: HRA balances cannot be invested or earn interest.
Health plan requirement: HRAs can be paired with any qualifying employer health plan, not only HDHPs (though certain HRA types have restrictions).

Specialized HRA types include the QSEHRA (Qualified Small Employer HRA) for employers without group coverage and the ICHRA (Individual Coverage HRA), each with their own contribution limits and rules.

Flexible Spending Accounts (FSAs)

An FSA is an employer-sponsored, employee-funded account (the employer may also contribute). Contributions are made pre-tax through payroll deductions. The account is employer-owned — a critical difference from the HSA.

2026 FSA limits:

Healthcare FSA: $3,400 per year
Dependent Care FSA: $7,500 per household (for childcare/eldercare)

A unique FSA feature is the uniform coverage rule: the full annual healthcare FSA election is available to the employee on day one of the plan year, even before all contributions have been made through payroll. If the employee leaves mid-year after using more than they contributed, the employer absorbs the shortfall.

The defining limitation is the use-it-or-lose-it rule: funds not spent by the plan year deadline are forfeited to the employer. Employers may offer one of two safety valves (not both):

A carryover of up to $680 (2026) in unused funds to the next plan year, or
A grace period of up to 2.5 months into the next plan year to spend remaining funds

Comparing HSA, HRA, and FSA

Feature	HSA	HRA	FSA
Owner	Employee (individual)	Employer	Employer
Funded by	Employee, employer, or both	Employer only	Primarily employee
Requires HDHP	Yes	No (varies by type)	No
Annual limit	IRS-set ($4,400/$8,750 for 2026)	Employer-set (QSEHRA has IRS cap)	IRS-set ($3,400 for 2026)
Rollover	Unlimited — full balance rolls over	Employer's discretion	Up to $680 carryover or 2.5-month grace period
Portable	Yes — stays with individual	No — stays with employer	No — tied to employment
Investments	Yes — can invest once threshold met	No	No
Non-medical use	Yes after age 65 (taxed as income)	Never	Never

FAQ

Q: Can someone have both an HSA and an FSA?
Not both a general-purpose healthcare FSA and an HSA simultaneously, because the FSA is "first-dollar" coverage that disqualifies the individual for HSA contributions. However, a limited-purpose FSA — which covers only dental and vision — is HSA-compatible, allowing someone to use the limited FSA for dental and vision while preserving HSA eligibility for other medical expenses.

Q: Can an employer contribute to an employee's HSA?
Yes. Employer contributions to an HSA are not included in the employee's gross income and do not count as wages, making them tax-free to the employee. The combined total of employer and employee contributions cannot exceed the annual IRS limit.

Q: What happens to HSA funds if someone enrolls in Medicare?
Once you enroll in Medicare (any part), you can no longer contribute to an HSA. However, existing funds remain yours indefinitely and can still be used tax-free for qualified medical expenses — including Medicare Part B and Part D premiums — after enrollment.