Smart strategies to help employees choose and fund Health Care FSA and HSAs

As annual enrollment approaches, employers play a crucial role in guiding employees to select and fund the account that best fits their needs. Instead of focusing solely on the differences between Health Care Flexible Spending Accounts (HCFSAs) and Health Savings Accounts (HSAs), consider a strategy that prioritizes helping employees choose the right account and determine how much to contribute—ensuring they maximize their benefits and financial wellbeing.

Choosing the right account

• Enrolled in a High-Deductible Health Plan (HDHP)? If so, the HSAs is the standout choice. HSAs offer a triple tax advantage: tax-free contributions, tax-free growth, and tax-free withdrawals. The money always belongs to the employee even if they change jobs (there’s no “use it or lose it” rule), and many employers make contributions to the account. HSAs provide value and flexibility, including using the money for immediate medical costs or saving for future healthcare needs even in retirement.
• Not enrolled in an HDHP? Opt for the HCFSAs. FSAs deliver significant value by allowing employees to set aside pre-tax dollars for a broad range of medical expenses. The full annual contribution is available from the first day of the plan year, making it a smart solution for budgeting health costs expected earlier in the year. However, careful planning is key because money must generally be used for expenses incurred during the plan year.

Regardless of which account employees select, contributing to either an HSAs or HCFSAs provides meaningful financial benefits and helps manage healthcare expenses more effectively.

Deciding how much to contribute

• Estimate upcoming medical expenses: Consider expected out-of-pocket costs for the year—copays, deductibles, prescriptions, dental and vision care. This applies to both HSAs and FSA accounts.
• For HSAs: Employees can contribute even more if they want to save for future medical expenses—whether one to two years down the road or even into retirement. Depending on their financial situation, employees should consider contributing up to the maximum allowed (including any catch-up contributions if eligible). The compounded tax benefits and earnings growth make HSAs a powerful long-term savings vehicle.
• For FSAs: Contributions should generally match expected expenses for the upcoming plan year, as unused funds are typically forfeited. Some employers may offer a carryover provision, permitting a portion of unused money to be carried over to the next plan year; however, the IRS limits the amount that can be carried over (e.g., only $680 in 2026).

Quick comparison

Employer tips for effective guidance

• Segment communications: Target HDHP enrollees with HSAs guidance; provide FSA information to others.
• Use real-life scenarios: Show how contributions can cover common expenses and highlight long-term savings potential, especially with HSAs.
• Promote long-term value: Emphasize HSAs for future savings and FSAs for short-term budgeting. Remind employees about contribution limits, catch-up options, and the impact of compounded earnings over time.
• Clarify account restrictions: Note that employees generally can’t have both accounts, unless they use a Limited Purpose FSA alongside an HSAs.
• Leverage multiple communication channels: Use email, intranet, webinars, and manager conversations to reinforce messaging.

By guiding employees to the right account and helping them determine appropriate contribution amounts, employers empower their workforce to make smarter choices, maximize tax advantages, and build financial resilience. Proactive, clear communication during annual enrollment leads to greater engagement and satisfaction with your benefits program.

Author

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Sara Taylor

Senior Director, Employee Spending Accounts

Sara has more than 31 years of experience bringing strategic direction and innovation to benefits outsourcing solutions. Her broad benefits experience includes health and welfare plan administration, spending account administration, healthcare advocacy, compliance solutions, and individual Medicare and exchanges. Sara is recognized for her deep subject matter expertise and ability to strategize and solution broadly across multiple services. Sara also has extensive experience leading strategic partnership relationships and merger and acquisition activities.

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