With healthcare costs historically exceeding the rate of inflation, finding opportunities to cover medical expenses is becoming an increasingly important piece of the financial planning puzzle. Depending on your health insurance plan or employee benefits, you may be able to take advantage of a health account (and the tax benefits that come with it).
Health accounts, including HSAs and FSAs, are designed specifically for covering out-of-pocket medical expenses (excluding your monthly premiums). While they operate similarly, HSAs and FSAs offer distinctly different features and eligibility requirements.
Let’s take a look at what makes these accounts unique, and what sort of costs you can cover with your tax-advantaged health account.
Health Savings Accounts (HSAs)
An HSA (Health Savings Account) is available to individuals and families enrolled in a qualified High Deductible Health Plan (HDHP). If your health plan meets IRS criteria and you don’t have disqualifying coverage (like an FSA through a spouse or a Medicare plan), you’re typically eligible to contribute.
The HDHP criteria for 2026 are:
- Individual deductible: $1,700 or higher
- Family deductible: $3,400 or higher
- Individual out-of-pocket maximum: $8,500 or less
- Family out-of-pocket maximum: $17,000 or less
And the contribution limits for an HSA this year are:
- Individual: $4,400
- Family: $8,750
Once you open an HSA (either with your employer or a separate financial institution), the account is yours to keep, even if you leave your job. The funds in the account don’t expire, meaning you can allow your savings to continue compounding and growing for as long as you like.
While you cannot use your HSA to cover your monthly premiums, it can be used to cover just about any other healthcare-related expense:
- Deductibles
- Co-pays
- Prescriptions
- Medical equipment (beds, walkers, CPAP machines, etc.)
- Over-the-counter medications
- Medicare premiums (after age 65)
HSA Tax Treatment
Aside from helping you build dedicated savings for medical costs, HSAs also boast a triple tax advantage:
- Contributions are made pre-tax (or tax-deductible if made on your own)
- The funds grow tax-deferred
- Withdrawals are tax-free when used for qualified medical expenses
That combination makes HSAs one of the most tax-efficient savings vehicles available. Unlike many other benefit accounts, HSA funds can be invested and allowed to grow over time, which is why some people choose to pay current medical costs out of pocket and treat their HSA more like a long-term savings bucket.
After age 65, HSAs become even more flexible. You can still take tax-free withdrawals for qualified medical expenses, but you can also withdraw funds for non-medical purposes without a penalty (though those withdrawals are taxed as ordinary income).
Flexible Spending Accounts (FSAs)
Unlike HSAs, flexible spending accounts (FSAs) are not tied to high deductible health plans. An FSA is actually an employer-sponsored benefit account that allows you to set aside pre-tax dollars from your paycheck to pay for qualified medical expenses.
Your FSA eligibility depends on whether your employer offers it as part of your benefits package. If they do, you can usually elect an annual contribution amount during open enrollment and fund the account through payroll deductions.
FSAs are also tax-advantaged, since contributions are made pre-tax, which lowers your taxable income for the year, and withdrawals for qualified medical expenses are tax-free as well.
Use It or Lose It
Most FSAs are subject to a “use it or lose it” policy, meaning unused funds are forfeited if not spent by the plan deadline (usually end of year). Some employers offer limited flexibility, such as allowing a small rollover amount into the next year or a short grace period to spend remaining funds. FSAs are also employer-owned, so if you leave your job, you typically forfeit any unused balance unless you qualify for continuation coverage.
Common Questions from HSA and FSA Participants
So, what can you buy with the funds stored up in your HSA or FSA? The IRS continues to expand eligibility, with more items getting added to the list every year.
We thought it’d be helpful to share some of the most frequently asked questions people have about qualifying HSA and FSA expenses:
Are over-the-counter pain relievers considered HSA-qualified expenses?
Yes, over-the-counter (OTC) medications, including pain relievers, can count as HSA-qualifying expenses. This is a relatively recent change that went into effect on January 1, 2020 as part of the CARES Act. As with other purchases, keep your receipts as proof of eligibility if necessary.
Where can I find a list of HSA or FSA-qualified expenses?
You can find the most current list of qualified medical expenses in IRS Publication 502.
Can I use my HSA for alternative medicine treatments?
The list of eligible expenses for HSAs has grown considerably and includes some alternative treatments, including Christian Science practitioners, acupuncture, and naturopathy. You may be required to provide a letter of medical necessity (LMN) from a doctor for the expense to qualify.
Can I use my HSA card at major pharmacy chains for qualified expenses?
Yes, you can use your HSA card to purchase qualifying items at major pharmacy chains and grocery stores (for eligible expenses only). You can also purchase qualifying items on dedicated marketplaces, such as HSAStore.com and FSAstore.com.
What products are covered under HSA/FSA qualified expenses?
As the criteria for HSA and FSA qualifying expenses continue to widen, the list of products and services has grown exponentially. Expenses generally qualify if they’re related to your physical and mental health. Aside from prescriptions, co-pays, deductibles, and other common medical costs, this can include some surprising medical expenses too including skin treatments and red light therapy masks, bicycles, smart watches, sun screens, air purifiers, etc. Just keep in mind, some expenses do require a letter of medical necessity from a doctor.
Need Help Maximizing Your Health Accounts in 2026?
There’s really been no better time to open an HSA or FSA, considering the rising cost of healthcare and expanded eligibility for qualifying expenses. If you have the opportunity to contribute to a tax-advantaged health account, it’s well worth the consideration, even if you’re in good health. Given the vast number of eligible expenses, it’s likely you’ll find some way to spend your savings (even when you’re facing “use it or lose it” deadlines).
If you’d like to discuss your options or learn more about making the most of your health savings this year, reach out to our team anytime. We’d be happy to discuss how your healthcare costs play into your greater financial picture and goals.
