How Health Savings Accounts (HSAs) Work

Health Savings Accounts (HSAs) are designed to let consumers take more control of their health care, and save tax-free money for to pay for their health expenses.


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Here’s how they work:

Becoming Eligible to Open an HSA

To become eligible to open an HSA, you’ll have to enroll in a high-deductible health plan (also called an HDHP). Any individual health insurance plan counts as an HDHP if the deductible is at least $1,100 ($2,200 for families).

Most HDHPs are PPO plans.

Making Contributions and Saving Money

Contributions to your HSA can come directly from your paycheck, or you can deposit savings yourself. Either way, you get tax benefits.

When savings come straight out of your check, they’re deposited before income taxes are taken out. You would set this up through your employer. If your employer can’t make deposits to your HSA, you can make the deposits yourself and get a refund on your annual tax return.

Your employer is also allowed to make tax-free contributions to your HSA account. Many employers have started doing this as an added benefit for their employees.

Using Your HSA Funds

The money in your Health Savings Account can be used to pay for any HSA-qualified expense. “Qualified expenses” are defined by the Internal Revenue Service. You can see a list of qualified expenses here.

Most health care costs are included — such as medical equipment, medication, hospital care, and specialist care. You can even use your HSA to pay for things that insurance plans don’t cover, such as bandages.

Keep in mind that if you withdraw money for an expense that doesn’t qualify, it will be taxed like regular income. You’ll also have to pay an additional 10% tax penalty.

Learn more about using your HSA and HDHP.

HSA Savings Earn Interest

Unlike other medical accounts, the money you save in your HSA stays in your account year after year — and it earns interest.

HSAs are fully portable — if you change jobs or move to a different state, you won’t lose any of your savings.  Even if an old employer contributed money, you keep every penny.

An HSA can also be used a long-term savings tool. Once you turn 65 years old, you can withdraw funds in an HSA for any reason — without the 10% tax penalty.

Want to open a Health Savings Account and explore more options? Use one of our insurance tools to compare HSA-compatible plans.

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You can also find out more on why you should open a Health Savings Account.