What Is a Health Savings Account (HSA)?


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What Is a Health Savings Account (HSA)?

A Health Savings Account (HSA) is a medical savings account available to enrollees in a high-deductible health insurance plan. HSAs were first created in 2003. The HSA savings account includes tax benefits, specifically, the ability to spend pre-tax dollars on qualified medical expenses. If the pre-tax funds are not spent within the year they are deposited within the HSA account they will ‘roll-over’ into the following year. This roll-over feature stands in contrast to Flexible Spending Accounts where deposited funds are lost if they are not spent in the year for which they are saved.

HSA funds may only be used for qualified medical expenses. Over-the-counter (OTC) drugs such as aspirin cannot be purchased with HSA unless the purchaser has a doctor’s prescription for the OTC drugs. If a person spends HSA on nonmedical expenses, the person will be responsible to pay a penalty as well as the federal taxes owed on the funds unless the person is of retirement age. If the person is of retirement age, a penalty does not apply but federal taxes do apply but at current the tax rate of the retiree, not the age at which the funds were originally deposited.

  • Fee for a visit to a primary care doctor, specialist, nurse practioner, or physician's assistant
  • Prescription medications
  • Health insurance deductible
  • Copayment or coinsurance expense for a surgical procedure
  • Fee for a dental visit
  • Fee for a vision visit
  • Fee for a chiropractor
  • Expense for a durable medical equipment
  • Expense for a hearing aid

HSAs may provide a debit card to access funds or require you to use a reimbursement form.

The Affordable Care Act does not allow HSA funds to be used on dependent children above the age of 24.

Contribution Limits

Individuals enrolled in a high deductible health plan may make pretax HSA contributions in 2013 up to $3,250 a year. Families enrolled in high deductible health plans may contribute up to $6,450 in 2013. Individuals who are age 55 or older can contribute an additional $1,000 annually to a HSA. An individual can no longer make new contributions to a HSA after he or she has enrolled in Medicare Parts A or B.

Employers can also make contributions to an individual’s HSA account, whether alone or in combination with contributions by the individual.

Other Options

Another medical savings account option is a Health Reimbursement Account (HRA). Visit our HSA vs. HRA page to learn the pros and cons of each option.



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