You could be passing up ‘free money’ when choosing to contribute to your FSA and HSA. Here’s how to make the most of open enrollment

The irony is that these plans are specifically designed to help households lower out-of-pocket costs, yet many workers don’t fully understand how they work.

The value of FSAs and HSAs

Open enrollment is the limited annual window when workers can update their health insurance, adjust their retirement contributions and elect optional benefits like FSAs and HSAs. (1) Once the window closes, most choices can’t be changed until the next enrollment period unless a major life event occurs. That makes these few weeks one of the most important – and most overlooked – moments in the financial calendar.

FSAs and HSAs often cause confusion because their names sound similar, but they serve distinct purposes. FSAs allow workers to set aside pre-tax dollars for medical costs such as deductibles, copays, prescriptions and a long list of eligible items. The major limitation is that FSAs are generally “use it or lose it” (2) accounts; any money left unspent at year’s end may be forfeited unless an employer offers a carryover or grace period.

HSAs, by contrast, are only available to people enrolled in a qualifying high-deductible health plan. They allow pre-tax contributions that never expire, can be invested and can be used tax-free for eligible health expenses now or later, even decades down the road. Because contributions, investment gains and qualified withdrawals are all tax-free, HSAs are often described as the only account that offers a true “triple tax advantage.”

Confusion costs people real money

Despite the advantages, FSAs and HSAs remain among the least understood workplace benefits. For instance, just one in five Gen Z-ers use FSAs and HSAs (3) and understand its place in someone’s employer health insurance mix, according to a recent survey by HR firm Justworks. It’s part of a worrisome larger trend reflecting a lack of research by Gen Z into how these parts of a plan can benefit them.

“Up to 81% are leaving free money on the table,” David Feinberg, Justworks senior vice president of risk and insurance, told CNBC. (2)

This confusion can lead to costly missteps. Workers who underfund HSAs may lose out on employer contributions, which are essentially free money, simply because they didn’t open the account or contribute the minimum needed to qualify. Those who overfund FSAs risk forfeiting unused money at the end of the plan year. And households that skip these accounts entirely often end up paying medical expenses with after-tax dollars, missing out on hundreds of dollars in tax savings.

Choose wisely

The first step in choosing between an FSA and an HSA is understanding your likely medical expenses for the coming year. Households with predictable costs (like recurring prescriptions, therapy sessions, or specialist visits) often find FSAs helpful because they can set aside tax-free money specifically for those expenses. The goal is to contribute an amount that will be fully used by year-end, minimizing the risk of leaving money behind.

HSAs involve a different kind of strategy. The best starting point is to determine whether an employer offers contributions to the account, because those deposits represent guaranteed returns just for participating. A 2025 Plan Sponsor Council of America (PSCA) HSA survey of nearly 600 companies offering HSAs found that about 75% of employers made some type of contribution to their employees' HSAs in 2024. (4)

Workers who can comfortably handle a high-deductible plan and expect only occasional medical expenses may find that maxing out their HSA is one of the most tax-efficient moves they can make. The IRS allows unused HSA funds to roll over indefinitely and even be invested similarly to a 401(k), turning the account into a long-term wealth-building vehicle.

Article sources

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MetLife (1); CNBC (2); Justworks (3); PSCA (4)