A Health Savings Account, also known as an HSA, is like a personal savings account except the funds can only be used for medical expenses. Individuals with a high-deductible health plan can benefit from having an HSA to pay for medical expenses that their plan does not cover.
Understanding what an HSA is, the eligibility requirements, and the many benefits an HSA offers can help you save your hard-earned money and take better care of you and your family’s health in the long run.
What is an HSA?
An HSA is a savings account that lets you put aside money on a pre-tax basis to pay for qualified medical expenses. For example, when you have a copay at your doctor's office or an unexpected medical expense, you can pay using the funds saved in your Health Savings Account. HSA funds can be used to pay for deductibles and co-insurance. In fact, most medical-related costs are eligible for reimbursement through an HSA. These may include:
- Prescription and over-the-counter medications
- Diabetic testing supplies
- Blood pressure cuffs
- Menstrual and feminine hygiene products
- Vision care
- Dental care
- Acne treatments
- Acupuncture treatments
- Incontinence supplies
The list of eligible expenses is comprehensive and wide-reaching for a multitude of needs.
You may be eligible to contribute to an HSA if you're currently enrolled in a High Deductible Health Plan (HDHP) through the Health Insurance Marketplace or your employer. An HDHP usually covers only preventive care before charging a deductible. For plan year 2022, the minimum deductible for an HDHP is $1,400 for an individual and $2,800 for a family. This means if you're paying this or more, you may qualify to open a health savings account. There will also be a mention of whether you are 'HSA-eligible' somewhere in your plan's description. You can open an HSA through multiple channels, including your employer, your insurance provider, and your local bank or credit union.
Using Your HSA Account
Most HSAs issue you a convenient card that looks and functions just like a credit or debit card. You simply swipe or insert it when checking out online, at the pharmacy or doctor’s office and continue on your way. As long as you're purchasing HSA-eligible products or paying for vision, medical, or dental services, you’re covered!
There are a lot of great benefits to opening an HSA, including the peace of mind you'll have knowing you have something set aside for medical care and supplies. The primary benefit is that HSA contributions are either pre-tax (if you get an HSA through your employer) or tax-deductible (if you get it on your own). Funds for an HSA can be invested, and another tax advantage is that you don’t pay tax on the account’s growth. Any earnings you accrue through your HSA are tax-free. Plus, your funds roll over from year to year, as well, which puts it above a Flex Spending Account (FSA). Additionally, if you change employers, retire, or choose a new insurance provider, your funds will still be there for you to use.
It's also good to note that anyone can contribute to your HSA. This includes you, your employer, or even a family member. You can contribute up to $3,650 annually for an individual and $7,300 annually for a family. And if you fail to contribute the full amount in a year's time, you have the option to deposit the difference at the end of the year to lower your tax liability.
To summarize, the benefits of having a health savings account include:
- Not subject to federal income taxes
- Can be used for a wide variety of services and supplies
- Convenient way to pay at the cash register, online, or over the phone
- Anyone can contribute
- Provides financial security and peace of mind
- Earns tax-free interest
- Rolls over annually