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FSAs, HSAs and MSAs: Making Sense of Savings Accounts

As you prepare to enroll in Medicare for the first time, you might assume you’ll need to forget about all the elements of your employer-sponsored insurance that you’ve grown accustomed to over the years and get ready for an entirely new way of covering your health care costs. But in fact, there are some similarities and areas of overlap between employer-sponsored insurance and Medicare, and one of them is the savings accounts that sometimes accompany health insurance plans.


The rules and regulations for how you can use these savings accounts can be fairly complicated, but the primer below should give you the basic information you need to distinguish between the account options and understand how you might use them to help with Medicare costs. And if you’d like to learn more or explore your options further, you’ll find links to additional resources throughout.

So if you don’t know an FSA from an HSA and have never even heard of an MSA, read on for a quick guide to savings accounts.

The Basics

FSAs, HSAs and MSAs are the three types of savings accounts that can help you pay for medical expenses, and in some cases, other expenses, too. Because health plans that include savings accounts often have lower premiums and higher deductibles than plans without savings accounts, they can make good financial sense for people who are relatively healthy or expect their health costs to be low in the coming year.

All three types of savings accounts operate on the same basic principle: you can direct a certain amount of money each year into the accounts and use it to pay for things like insurance deductibles and other qualified medical expenses.

But the accounts also have important differences that can be confusing—and retirement can complicate things further.

Flexible Spending Account (FSA):

  • Employers set them up for active employees.
  • In 2017, you can contribute up to $2,600 in pre-tax dollars.
  • You can use your FSA funds to pay for insurance deductibles and copayments, but not for premiums. You can also use the money for medical equipment such as crutches, services such as acupuncture, or supplies such as bandages. The IRS publishes a full list of qualified expenses.
  • Although plans are allowed to provide a two-and-a-half-month grace period so that members can use any funds remaining in their account at the end of the year, most plans do not allow you to roll any money over. For that reason, it’s important to monitor your balance and carefully plan your spending so you don’t leave any money on the table.
  • If you’re still working when you become eligible for Medicare and keep your employer-sponsored insurance, you can continue contributing to and using your FSA in that calendar year. But remember: you won’t be able to roll over most of your funds once the year ends, so keep an eye on your balance.

Health Savings Account (HSA):

  • If you’re not yet enrolled in Medicare and have a qualified high-deductible health plan, you can set up an HSA, whether you get insurance through an employer or buy it on the individual market.
  • HSA plans are becoming increasingly popular. The most recent annual survey by America’s Health Insurance Plans shows that some 20.2 million people were enrolled in plans that qualify for an HSA in 2016, roughly double the number of people in 2010.
  • As with an FSA, you can use the money in your HSA for qualified medical expenses.
  • People with individual coverage can contribute up to $3,400 in 2017 before taxes, while families can contribute up to $6,750.
  • When you turn 55, you have an annual opportunity to increase your savings in your account with what’s known as a catch-up contribution: an extra $1,000 in pre-tax dollars per year.
  • HSAs are sometimes described as having triple tax advantages: Your contributions to an HSA are tax free, your account will grow tax free, and when you withdraw money to cover a qualified medical expense, that withdrawal is also tax free.
  • Unlike FSAs, an HSA is an individually owned account. Any contributions that you or your employer makes are yours and will remain in your account until you use them.
  • Once you’ve contributed a certain amount to your HSA, most HSA administrators allow you to invest a portion of your balance in mutual funds – and you won’t pay taxes on any profits you earn.
  • An HSA can also be part of a comprehensive retirement strategy to help you pay for health care-related expenses in retirement. Once you enroll in Medicare, you can no longer contribute money to your HSA, but you can use the balance in your account to pay for qualified medical expenses, including premiums for Medicare Part B, Medicare Part D and Medicare Advantage plans, but not for Medigap plans.
  • HSA funds can also cover payments for services that aren’t typically covered by Original Medicare, such as vision and dental care. You can also use them to pay non-medical expenses, but keep in mind that you’ll have to pay income taxes when you withdraw money for those purposes.

Medicare Medical Savings Account (MSA):

  • If you’ve never heard of an MSA, that’s likely because they’re rare: fewer than 3 percent of people enrolled in Medicare Advantage plans opted for one in 2015.
  • Medicare MSA plans have a high deductible.
  • You can’t contribute your own money to an MSA. Instead, Medicare deposits some of the money it would have paid your insurance plan to cover your care into the account.
  • Using the funds in your MSA, you pay for services covered under Medicare until you hit your deductible, which is capped at $6,700. After that, your plan will pay for 100 percent of your Medicare-covered medical expenses.

The Bottom Line

Figuring out how to use savings accounts in conjunction with your health care coverage can be tricky at first, but once you’ve mastered the details, they can be an important part of your overall financial plan for covering your health care costs throughout retirement.

Plans are insured through UnitedHealthcare Insurance Company or one of its affiliated companies. For Medicare Advantage and Prescription Drug Plans: A Medicare Advantage organization with a Medicare contract and a Medicare-approved Part D sponsor. Enrollment in these plans depends on the plan’s contract renewal with Medicare.

These materials are for informational purposes only and are not intended as legal advice. Please consult with your tax professional and refer to your plan to determine whether these account options may be right for you.