Health Savings Account

What is a Health Savings Account (HSA)?

An HSA is a tax-free savings account consumer pair with a high deductible health insurance plan to pay for routine medical expenses you incur. Think of it as a 401(k) for health care.

How does an HSA work?

Each year, you decide how much to contribute to your HSA. The money you deposit in the account is applied toward your deductible. Once the deductible is met, the insurance kicks in to cover any additional costs you incur – just like a traditional insurance plan.

Account holders receive a debit card or checks connected to their HSA balance to pay for eligible medical expenses. Funds withdrawn for non-medical expenses before the age of 65 are subject to a penalty.

Any unused funds roll over from year-to-year and earn interest in the process.

With these accounts, the individual owns the account – not the employer, even if they contribute to it. That means you can take your HSA with you should you change jobs.

Do I Qualify?

Your employer may offer Health Savings Account-qualified insurance as an employee benefit. Others may select HSA-qualified plans from their state exchanges via the Affordable Care Act. Your financial institution may also offer this type of account.

You may be eligible for a Health Savings Account as long as you are not a dependent on another’s tax return and do not have other disqualifying coverage, like a Flexible Spending Account (FSA), Medicare, Medicaid or Tricare. 

Account Limits

The IRS sets the minimum deductible, maximum contribution and maximum out-of-pocket cost for HSAs each year.

Health Savings Account Limits

 Minimum DeductibleMaximum ContributionMaximum Out-Of-Pocket
Individual 2018$1,350 $3,450 $6,650
Individual 2019$1,350$3,500$6,750
Family 2018$2,700 $6,900 $13,300
Family 2019$2,700$7,000$13,500
*A catch-up contribution of $1,000 is allowed annually for people 55 or older.

Tax Advantages

There are four tax advantages unique to HSA accounts:

  1. Contributions to HSAs are deductible to you, regardless of the source;
  2. Interest or investment gain on the account isn’t subject to tax;
  3. You can withdraw funds to pay for your qualified medical expenses without being taxed; and
  4. After the age of 65, you can withdraw funds for non-medical expenses without being subject to a penalty (however, they will be subject to income tax).