HSA: Health Savings Account

An HSA is a tax-exempt savings account established for the purpose of paying for the qualified medical expenses of an individual and/or his or her spouse and tax dependents.

HSA plans have grown in popularity because they offer potential health care cost savings to both employers and employees.  For example, individuals covered under HSA are more likely to seek preventive care, choose generic drugs, not misuse the emergency room and use online tools to research health care and providers.

Offered in conjunction with HDHPs (high deductible health plans), HSAs can cover medical expenses until the HDHP deductible is reached.  The idea of this design is that the HSA pays for routine, smaller health expenses, while the HDHP offers protection in the event of a catastrophic medical expense.

HSA Basics

  • HSAs are controlled and owned by the individual or employee
  • HSA contributions are non-taxable, and can be made by the HSA owner, an employer, or a family member
  • Annual limits apply to HSA contributions. The amount is federally mandated, and depends on whether the HSA owner has individual or family HDHP coverage.
  • HSA funds, including interest and earnings, accumulate tax-free from year to year.  HSAs are not subject to the "use it or lose it" rule.
  • HSAs are portable, meaning individuals keep their HSAs even if they change jobs, change medical coverage or make other life changes.
  • HSAs can help individuals become better health care consumers by giving them more of a stake in controlling their health care costs. Since they are responsible for more out-of-pocket expenses due to the higher deductible, many employees become more conscious of the health care dollars they are spending.