Unlock financial savings: Is an HSA or FSA right for you?

Suppose you need a screwdriver for a DIY job at home. Do you need a flathead or a Phillips? Both are similar tools that serve the same basic purpose, but are different enough that you really need to pick just one for the job at hand.

Now, apply this idea to the Health Savings Account (HSA) and the Health Care Flexible Spending Account (HCFSA). Both are similar — they are health accounts that allow you to save on federal taxes  — and serve the same basic purpose by helping you pay for eligible out-of-pocket health care expenses, such as doctor bills, dental work, vision care,  and pharmacy expenses.

However, the way they function is quite different, and for IRS reasons, you can only have one of these special accounts at a time based on the health plan in which you are enrolled.

Read this article to learn which account type is right for you, so you can maximize your savings and keep more money in your pocket.

Understand the basics

Stanford offers two types of accounts to help you save on out-of-pocket health care expenses. Both allow you to contribute before-tax dollars and use them for qualified out-of-pocket medical, prescription, dental, and vision costs. However, you cannot use both at the same time, so it’s important to choose based on your medical plan, needs, and eligibility. 

_{^{*You may be able to enroll in COBRA and make after-tax contributions to your HCFSA (plus a 2% administration fee).
**If you open an HSA with Fidelity through My Benefits, Stanford will contribute $1,152 for individuals or $2,352 for families (prorated if you join after Jan. 1). Your contribution and Stanford’s contribution combined cannot exceed the IRS limit.}}

Putting it into practice

The HCFSA and HSA offer tax savings that help you keep more of your hard-earned money to use for expenses you would likely pay for anyway. Let’s take a look at how these accounts work for people like you:

Alex is a 27-year-old enrolled in the Kaiser HMO Health Plan (employee only). He knows that in the coming year, he’ll need a minor outpatient surgery, some dental work, and a new pair of glasses, plus his usual copays and prescription medications. During Open Enrollment (Oct. 20 - Nov. 7, 2025), Alex elects a Health Care FSA (HCFSA) and chooses to contribute $1,800 (his best estimate of his expenses) for the year. In January, he receives his HCFSA debit card loaded with the full $1,800. Throughout the year, as Alex goes to the doctor, optometrist, and pharmacy, he uses his HCFSA debit card to pay for any eligible expenses. Later that month, Alex notices the deduction from his paycheck and notes how the amount is taken out before taxes, lowering the amount of his taxable income. This saves him approximately $400 in federal taxes per year, based on his 22% tax bracket.   

Natalie is a 35-year-old enrolled in the Stanford Choice High-Deductible Health Plan (employee + spouse). She and her wife are exploring using IVF to build their family and want to save for the future. Since they don’t have a set timeline, Natalie needs the flexibility to access her health savings over the next couple of years. She also knows that Stanford will contribute $2,352 to an HSA on her behalf because she’s enrolled in the Stanford Choice High-Deductible Health Plan. For these reasons, Natalie decides to elect an HSA during Open Enrollment and contribute $6,198, which, added to Stanford’s contribution, brings her to the maximum amount allowed by the IRS. She also chooses to make a lump-sum contribution from her first paycheck of the year so that she has funds available on her HSA debit card to use for copays, prescriptions, or any other eligible expenses while her balance accrues. 

Natalie then sets up an investment account with Fidelity (you can set up an HSA with any financial institution that provides HSA services, but to receive Stanford’s contribution it must be through Fidelity) and invests the remaining amount of her HSA, which she can withdraw tax-free at any time — even in retirement — to use on eligible health care expenses. Thanks to her HSA, Natalie enjoys a triple federal income tax advantage: no federal tax on contributions, growth, or qualified withdrawals***, and saves approximately $2,450 in federal and FICA taxes.

_{^{***Note: In California and New Jersey, HSA contributions are taxed at the state level. In New Hampshire and Tennessee, HSA earnings are taxed at the state level.}}

How the accounts work

1. Enroll:
   
   HCFSA - Elect to participate as a new hire, during Open Enrollment in the fall, or within 31 days of a Qualifying Life Event. You must re-enroll each year during Open Enrollment. 
   
   HSA - Can be opened at any time as long as you’re enrolled in an HDHP. You must actively re-enroll each year during Open Enrollment, as the previous year's contribution election will not carry over.
    
2. Contribute: Your elected amount is divided over all the pay periods and automatically deducted from your paycheck before taxes are withheld.
    
3. Pay for Eligible Expenses: Use your Fidelity debit card at the time of service. You can also log in to your Fidelity account to submit claims for reimbursement or pay providers directly. Save your receipts in case you’re asked to verify the expense.
    
4. Manage Your Account: Register with Fidelity and download the mobile app (App Store or Google Play) to check your balance and submit claims.

Which account is right for you?

Ask yourself:

• Which medical plan do you have?
  • Kaiser HMO, or Stanford Select Copay plan, or no Stanford health plan: You are eligible for the Health Care FSA.
  • Stanford Choice HDHP or ACA HDHP: You can open an HSA. Per IRS rules, you cannot have a Health Care FSA at the same time.
• Do you want to save for future health care expenses?
  • The HSA lets you save and grow your money over time. It’s like a retirement account for health care.
• Do you have predictable health care expenses like prescriptions and eyeglasses?
  • The Health Care FSA can help cover known costs, but you will need to estimate carefully.
• Do you want to reduce your taxable income?
  • Both accounts offer tax savings, but the HSA has more long-term benefits.

If you still have questions, visit Cardinal at Work for more information. And plan to attend the free Healthy Living class, Exploring the Benefits of a Health Savings Account (HSA), on October 3 at noon. Visit Healthy Living to learn more and register.

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