Alternative health benefits and the affordable care act: How HSAs and FSAs align—and where they clash
Since its passage in 2010, the Affordable Care Act (ACA) has dramatically reshaped the American healthcare landscape. Designed to expand access to health insurance, control costs, and improve system efficiency, the ACA introduced new mandates, marketplaces, and coverage rules. At the same time, employers and employees alike have increasingly turned to alternative health benefits such as Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) as tools to manage out-of-pocket healthcare expenses and maximize tax advantages.
But how do these alternative benefits interact with the ACA? Are they complementary or at odds with the law’s objectives? The answer is both—depending on how they’re implemented. To understand what may work best for a business, it is important to understand the relationship between the ACA and HSAs/FSAs, showing where they align, where they create tension, and how employers can navigate this complex but valuable part of the benefits landscape.
A quick overview of HSAs and FSAs
Before diving into how these benefits intersect with the ACA, it’s important to understand how they work:
- Health Savings Accounts (HSAs) are tax-advantaged savings accounts that can be used to pay for qualified medical expenses. To be eligible, individuals must be enrolled in a high-deductible health plan (HDHP). HSAs offer triple tax benefits: contributions are tax-deductible, earnings grow tax-free, and withdrawals for qualified expenses are tax-free.
- Flexible Spending Accounts (FSAs) are employer-established accounts that allow employees to set aside pre-tax dollars for certain out-of-pocket healthcare expenses. FSAs are not tied to any specific type of health plan, and funds must typically be used within the plan year unless a grace period or rollover is offered (click here to learn more about FSAa).
Both accounts offer considerable tax savings and empower employees to manage their healthcare spending more proactively. But their use must align with the rules and goals of the ACA—especially for employers seeking to comply with the law’s mandates.
Where HSAs and FSAs support ACA objectives
1. Encouraging consumer-driven healthcare
One of the ACA’s broader goals was to encourage more cost-conscious healthcare consumption. HSAs and FSAs support this by giving consumers more direct control over how they spend their healthcare dollars. With “skin in the game,” individuals tend to seek more competitive pricing, choose generic medications, and better plan for routine care.
This shift aligns with the ACA’s emphasis on cost containment. When employees use tax-advantaged accounts to budget and pay for services, it creates a layer of price transparency and accountability that’s often missing from traditional insurance models.
2. Expanding coverage through affordability
HSAs are only available to individuals enrolled in high-deductible health plans (HDHPs), which generally have lower premiums than traditional plans. This can make coverage more affordable for both employers and employees. Lower-cost premiums may allow small businesses to offer coverage to more workers—supporting the ACA’s goal of expanded insurance access.
Similarly, FSAs help reduce the effective cost of healthcare by allowing employees to pay for expenses with pre-tax dollars. This makes out-of-pocket costs like copays, prescriptions, and dental care more manageable—again supporting the ACA’s mission of affordability.
3. Employer compliance with the ACA’s employer mandate
For employers with 50 or more full-time employees, the ACA requires that they offer affordable, minimum essential coverage or face penalties. FSAs and HSAs can play a key supporting role here. While they don’t replace a qualified health plan, they can enhance a benefits package, making it more attractive without significantly increasing employer costs.
Some employers use HSAs and FSAs to supplement bronze- or silver-tier plans offered on the marketplace or through private insurers, helping employees manage deductibles and other costs while still meeting the letter of the law.
Where HSAs and FSAs conflict with ACA objectives
1. HDHPs can create access barriers
While HSAs are designed to make healthcare spending more efficient, they are tied to HDHPs—which require individuals to pay more out-of-pocket before insurance kicks in. While this may encourage more responsible spending, it can also deter people from seeking necessary care due to cost concerns, especially low-income workers.
This runs counter to the ACA’s aim of ensuring comprehensive, accessible coverage for all. Critics argue that high deductibles disproportionately affect vulnerable populations, even if paired with an HSA.
2. FSAs and the use-it-or-lose-it rule
Under ACA regulations, FSAs are capped at an annual contribution limit (currently $3,200 for 2025). While that aligns with the ACA’s intent to limit overly generous tax-free healthcare spending that could lead to overuse, the FSA’s infamous “use-it-or-lose-it” rule can be problematic.
Employees who don’t spend their FSA balance within the plan year (or applicable grace period or rollover limit) forfeit the remaining funds. This policy may discourage some from participating in FSAs at all—limiting access to a benefit that could otherwise support affordable care. It may also lead to unnecessary healthcare spending toward the end of the year, which contradicts cost-containment goals.
3. Potential conflicts with ACA premium subsidies
Another area of friction arises when employees eligible for ACA marketplace subsidies opt for employer-sponsored plans that include an FSA or HSA. In some cases, accepting employer benefits may disqualify workers from receiving subsidies on the exchange—even if the employer plan is less favorable.
For part-time workers or those on the edge of affordability thresholds, this can create a lose-lose scenario, forcing employees to choose between marginal employer coverage and subsidized marketplace options. This undermines the ACA’s intent to make meaningful, affordable coverage widely accessible.
Best practices for employers
If you’re an employer looking to offer HSAs or FSAs in an ACA-compliant way, consider these steps:
- Ensure plan compatibility: Make sure any HDHP used with an HSA meets IRS guidelines and still offers essential benefits in line with ACA minimum value standards.
- Communicate clearly: Educate employees on how HSAs and FSAs work alongside their health plans, particularly around contribution limits, eligible expenses, and deadlines.
- Offer decision support tools: Use benefits platforms that help employees compare plan options, estimate out-of-pocket costs, and determine if an FSA or HSA makes sense based on their health needs.
- Stay current with limits and regulations: Contribution limits and ACA thresholds change regularly. Work with a benefits advisor or third-party administrator to stay in compliance.
HSAs and FSAs are powerful tools that can complement the Affordable Care Act’s goals—when implemented thoughtfully. They offer tax advantages, promote smarter healthcare spending, and help employees better manage their costs. But when misaligned with ACA rules or paired with overly high-deductible plans, they can also create friction and inadvertently limit access to care.
The key for employers is to strike the right balance. By integrating alternative health benefits into a well-structured, ACA-compliant benefits strategy, companies can support employee wellness, remain competitive in a tight labor market, and protect their financial health—all at the same time.