HSA Vs. FSA For Medical Expenses: What’s The Difference?

Some people seeking mental health assistance experience financial barriers, particularly if they have health insurance that doesn’t cover mental health care. Both health savings accounts (HSAs) and flexible spending accounts (FSAs) allow individuals to save and pay for qualified medical expenses—including possible mental health expenses—using pre-tax income, potentially reducing taxable income. However, there are significant differences that make each option suitable for different situations. This post explains HSAs and FSAs, their advantages, and how they can help people seeking mental health care. 

What is a health savings account (HSA)?

An HSA or health savings account is a tax-advantaged savings and investment account specifically designed to help individuals save and pay for qualified medical expenses, including deductibles, co-payments, coinsurance, and services not covered by insurance. This can include costs like dental care, vision care, and mental health services. HSAs are owned by the individual, meaning they are portable and stay with you, regardless of employment or insurance coverage changes.

HSA eligibility rules for qualified medical expenses coverage

To be eligible for an HSA, you must meet several requirements established by the IRS. Eligibility is assessed monthly. Requirements include the following:

• You must be enrolled in a high-deductible health plan (HDHP).
• You cannot have other disqualifying health coverage, such as a flexible spending account (FSA) or health reimbursement arrangement (HRA).
• You cannot be enrolled in Medicare.
• You cannot be claimed as a dependent.
• You must be at least 18 years old.

What is a flexible spending account (FSA)?

An FSA is an employer-sponsored benefit that allows you to set aside pre-tax money to pay for certain out-of-pocket care costs. You decide how much to contribute to your FSA for the year, up to a limit set by your employer and the IRS. This amount is deducted from your paychecks before taxes are withheld. FSAs are employer-sponsored accounts, so if you leave your job, you typically lose access to the remaining funds. 

FSA types

There are two main types of FSAs:

• A health care FSA used to pay for qualified medical expenses for yourself, your spouse, and any dependents
• A dependent care FSA used to pay for expenses related to caring for a child under 13 or a spouse or adult dependent who is physically or mentally incapable of caring for themselves, allowing you to work or look for work

Why FSAs and HSAs matter for therapy, counseling, and wellness

Qualified medical expenses for psychological treatment

For an expense to qualify for HSA or FSA reimbursement, the therapy or service must be considered "medically necessary" and used to diagnose, treat, or prevent a health condition. Depending on the program, examples of potentially covered expenses might include those listed below: 

• Therapy and counseling sessions
• Psychiatric care and medications
• Inpatient and outpatient treatment programs
• Teletherapy and online therapy services
• In some cases, alternative therapies like acupuncture or even gym memberships, if medically necessary and prescribed by a healthcare provider
• Eligible wellness expenses (e.g., stress management and sleep aids)

You may need to provide a letter of medical necessity (LMN) from your healthcare provider for certain services, especially for alternative therapies or treatments not directly related to a diagnosed condition.

Insurance coverage and mental health care

Many mental health providers, including those on BetterHelp, do not accept insurance. The reasons for this are many and often depend on reimbursement rates, administrative burden, and logistical issues. Additionally, some providers place restrictions on the types of services that therapists can provide, creating potential treatment complications.

Can I use an HSA or FSA combined with insurance coverage for mental health costs?

In some cases, you may use HSAs and FSAs to pay for some mental health care costs if you already have insurance coverage. These accounts cover expenses not paid by insurance, like co-pays, coinsurance, and deductibles. When attempting to use insurance combined with FSA or HSA funds, make sure the specific service is eligible and check with your plan for details, as a letter of medical necessity (LMN) may be required. 

HSAs for covering mental health care costs: Pros and cons

An HSA offers numerous benefits for managing and covering mental health care expenses. Here's how an HSA can help:

• The “triple tax savings advantage” of tax-deductible, investible contributions combined with tax-free withdrawals for eligible medical expenses and mental health care expenses
• The flexibility and accessibility of a wide range of eligible expenses, payment options for out-of-network care, and the lowering of financial barriers to care
• The empowerment and control of managing one’s own mental health expenses, allowing individuals to roll over unused funds from year to year with investment options 

Potential health savings account drawbacks

While HSAs offer significant tax advantages and flexibility, they also come with certain drawbacks to consider: 

• To be eligible for an HSA, you must be enrolled in a high-deductible health plan (HDHP).
• HSAs may have strict eligibility and contribution rules.
• You may owe federal income taxes if you withdraw funds from your HSA for reasons other than qualified medical expenses before turning 65.
• Some HSA providers charge monthly maintenance fees, transaction fees, and other administrative fees that can reduce the overall value of your account.
• You cannot contribute to an HSA if you are enrolled in Medicare or can be claimed as a dependent on someone else's tax return.

Benefits of FSAs for mental health care

Like an HSA, contributions to an FSA are made with pre-tax dollars, reducing your taxable income. Reimbursements for qualified mental health expenses are also tax-free, further enhancing savings. Additionally, you can use FSA funds to pay for deductibles, co-pays, and coinsurance associated with mental health services. Other benefits might include the following: 

• You may use FSA funds for a variety of mental health services.
• The full amount of your annual FSA contribution is typically available on the first day of your plan year, allowing you to pay for services, even if you haven't yet contributed the full amount.
• Some employers may choose to contribute to their employees' FSAs, further increasing their available funds.

Potential flexible spending account drawbacks

Flexible spending accounts can also have disadvantages in some circumstances. Some of these are listed below:

• Funds not spent by the end of the plan year are forfeited to the employer. 
• While employers can choose to offer a grace period (2.5 months) or a carryover amount (up to $660 for 2025), not all plans do, and these options vary by employer. 
• FSAs are tied to your employer; if you leave your job, you lose access to the account.
• There are IRS-mandated annual limits on how much you can contribute, which might not be enough to cover all your medical expenses. 
• FSA rules and options can vary by employer, so it's essential to understand your specific plan's policies. 

How to use FSA/HSA on the BetterHelp platform 

Did you know BetterHelp accepts FSA/HSA cards and is recognized as an eligible expense by most providers? Don’t let your dollars go to waste and invest in your mental health before the year ends. For FSAs, remember “use it or lose it”: consider applying remaining funds before the year ends. Because some FSA plans don’t allow subscription charges, try charging your FSA card first; if that method doesn't work, you should be able to pay with a personal card and submit itemized receipts for each session (sessions are usually FSA-approved). To explore using your FSA/HSA funds on online therapy platforms to support your mental health, we recommend checking with your employer/benefits administrator to see if this is a covered expense. 

Which plan is best for mental health expenses? 

For mental health expenses, both an HSA and an FSA can be beneficial, but the best choice depends on your individual circumstances and healthcare plan. For example, if you’re currently enrolled in an HDHP, an HSA may be a good option. Alternatively, an FSA may be the best option if you have a plan without high health insurance premiums and your employer offers a flexible spending account option—particularly if they’ll match part or all of your contribution. 

It's important to confirm which specific mental health expenses are eligible under your HSA or FSA plan with your benefits administrator or by reviewing the IRS guidelines. Some treatments, like certain alternative therapies or behavioral modification, might require a letter of medical necessity (LMN) from a healthcare provider to be reimbursed. 

Overcoming financial obstacles to online mental health care

Like many providers, BetterHelp is currently working to connect with insurance carriers. While some therapists on the platform accept insurance, some cannot due to state limitations. BetterHelp does accept HSA and FSA accounts, however, and is recognized by most providers as an eligible expense. This may alleviate some of the financial burden for people seeking mental health care. BetterHelp also offers financial assistance to those who qualify.

Research suggests that online therapy tends to produce the same results as in-person therapy. Many people enjoy the convenience of attending sessions with a licensed mental health professional from home or another preferred location.