What is an HSA?
Who is this for?
If you’re interested in health spending accounts, this information can help you understand more about them and how to use them.
A health savings account, or HSA, is a kind of health spending account that's part of consumer-directed health care. “Consumer directed” means you manage more of the money you spend—and save—on medical expenses.
Who can have an HSA?
You're eligible if you:
- Are enrolled in an HSA-compatible high-deductible health plan.
- Can't be claimed as a dependent on someone else's tax return.
- Aren't covered by or already enrolled in another health care plan that isn't HSA-compatible.
- Aren't enrolled in Medicare.
What's a high-deductible insurance plan?
A deductible is the amount of money you have to pay before your health insurance begins to pay. Typically, the higher the deductible, the lower your monthly premiums are.
Here are the 2013 amounts for plans considered high-deductible that work with HSAs:
- The minimum deductible for individuals is $1,250
- The minimum deductible for families is $2,500
How does an HSA work?
A health savings account is like a combination 401(k) and checking account for your medical expenses.
Most people put money into their HSA by having it taken out of their paycheck by their employer. When they do, no taxes are taken out. Both of you save money that way. But you, and even family and friends, can make a deposit to your HSA at any time. You can deposit post-tax money into your HSA and deduct your contributions from your income tax.
Then, when you have a medical expense your health plan doesn't cover, you can use the money in your HSA. For more information about everything you can do with a health savings account, read "How can I use my HSA?"
What are the advantages of an HSA?
- HSA-eligible health care plans generally cost less per month than other plans.
- You own and control the money in your HSA. You decide how to spend the money without relying on a third party or a health insurer.
- If your employer makes payroll contributions to your HSA, the funds are tax-free. If not, you can make your own post-tax contributions and deduct them on your income tax. Any funds withdrawn from your HSA to pay for qualified medical expenses or investment gains on your HSA funds are also tax-free.
- Although everyone’s situation will be different, a family in the 28 percent tax bracket that puts $5,000 into an HSA will reduce their federal income tax by about $1,400.
- HSA contributions can be used to pay for a wide range of medical expenses not typically covered by other health care plans or health care accounts.
- You can invest the money in your HSA to maximize its value.
- Your HSA is completely portable. If you change jobs, move to another state or become unemployed, your HSA goes with you.
Is an HSA right for you?
If you have a lot of medical expenses, or you’re not very good at saving money, a traditional health insurance plan might be better for you.
But if you like the idea of lowering your taxes and health insurance costs, and having more say in your health care spending, an HSA could be a good fit. Here are some resources to help you learn more.
- Health Savings Account calculators. Figure how much you'll save, how much you need to contribute and more.
- Example of how an HSA works (for individuals) (PDF)
- Example of how an HSA works (for families) (PDF)