What Is an HSA or FSA Card and How Do They Work?

Health Savings Account (HSA) and Flexible Spending Account (FSA) cards serve as dedicated payment tools for healthcare expenses. These cards provide a streamlined method for individuals to access pre-tax funds set aside specifically for medical costs. Both types of accounts offer financial benefits by allowing users to pay for eligible medical, dental, and vision services or products with tax-advantaged money.

Understanding HSA Cards

An HSA card functions as a debit card directly linked to a Health Savings Account (HSA). This account is a tax-advantaged savings vehicle for individuals enrolled in a high-deductible health plan (HDHP). To qualify for an HSA, an individual must be covered by an HSA-eligible HDHP, not be enrolled in Medicare, and not be claimed as a dependent on someone else’s tax return.

Contributions to an HSA can come from the individual, an employer, or other parties, and are made on a pre-tax or tax-deductible basis, reducing taxable income. Funds within an HSA grow tax-free, and withdrawals are also tax-free when used for qualified medical expenses. This “triple tax advantage” makes HSAs a valuable tool for healthcare savings. The HSA is owned by the individual, meaning it remains with the account holder even if they change jobs or switch health insurance plans. Funds in an HSA can also be invested, allowing the money to grow over time, and there are no requirements to withdraw funds by a certain date.

Understanding FSA Cards

An FSA card operates as a debit card connected to a Flexible Spending Account (FSA), an employer-sponsored benefit. Employees contribute to an FSA by setting aside a portion of their gross pay, usually through payroll deductions, for eligible expenses. These contributions are exempt from federal, state, and FICA taxes, effectively lowering an employee’s taxable income. Employers may also contribute to an FSA, though this is not always required.

The FSA card provides a convenient way to access these pre-tax funds for immediate use at the point of sale, streamlining the payment process for medical costs. While FSAs offer significant tax advantages for healthcare spending, they are tied to employment and are structured on an annual plan year. The entire elected annual amount is typically available for use at the beginning of the plan year, even if not fully deducted from paychecks yet.

Comparing HSA and FSA Cards

HSA and FSA cards differ in several key aspects. Eligibility is a primary distinction: HSAs require enrollment in a high-deductible health plan, while FSAs are typically available to employees through their employer, regardless of their health plan type. Ownership also varies; an HSA is individually owned and portable, meaning the account and its funds belong to the account holder even after leaving a job. Conversely, an FSA is employer-owned, and generally, employees cannot take the account with them if they leave their company.

Rollover rules represent another significant difference. HSA funds can be carried over indefinitely from year to year, accumulating over time. FSAs, however, typically follow a “use-it-or-lose-it” rule, where unused funds at the end of the plan year may be forfeited. Some FSA plans may offer a limited rollover amount or a grace period, usually up to two and a half months, to use remaining funds. While both account types have contribution limits set by the IRS, HSA limits tend to be higher than those for FSAs.

Eligible Expenses and Card Usage

Both HSA and FSA cards can be used for a wide range of expenses defined as “eligible” by the IRS, primarily for alleviating or preventing physical or mental disability or illness. Common eligible expenses include doctor visits, hospital stays, prescription medications, dental care, and vision services like eyeglasses or contact lenses. Over-the-counter medications, menstrual care products, and personal protective equipment like masks and hand sanitizer are also generally eligible.

When using an HSA or FSA card at the point of sale, it functions like a regular debit card. Many pharmacies, medical offices, and some retail stores are equipped with an Inventory Information Approval System (IIAS) to automatically identify eligible items. If a merchant does not have an IIAS, or if the purchase includes both eligible and ineligible items, the card may be declined, or the user might need to pay out-of-pocket and then submit a claim for reimbursement. It is important to retain receipts for all purchases made with these cards, as the IRS requires substantiation of eligible expenses, and plan administrators may request documentation.

Managing Your Card and Account

Regularly checking the account balance is important to track available funds, which can typically be done through an online portal, mobile app, or by calling the plan administrator. Staying aware of the balance helps prevent declined transactions due to insufficient funds.

Retaining receipts and other documentation, such as Explanation of Benefits (EOB) forms, is crucial. Plan administrators may occasionally request proof that a purchase was for an eligible expense. For HSAs, receipts should be kept in personal files in case of an IRS audit, even if not immediately required by the administrator.

If a card is lost or stolen, notify the plan administrator immediately so they can block the card and issue a replacement. During the investigation or while awaiting a new card, individuals can often still access funds by paying out-of-pocket and submitting a reimbursement claim.