Health savings accounts are used to save money for future medical expenses. Discover how these plans work.By Mayo Clinic Staff
Health savings accounts (HSAs) are like personal savings accounts, but the money in them is used to pay for health care expenses. You — not your employer or insurance company — own and control the money in your HSA.
The money you deposit into the account is not taxed. To be eligible to open an HSA, you must have a special type of health insurance called a high-deductible plan.
HSAs and high-deductible health plans were created as a way to help control health care costs.
The idea is that people will spend their health care dollars more wisely if they're using their own money.
Like any health care option, HSAs have advantages and disadvantages. As you weigh your options, think about your budget and what health care you're likely to need in the next year.
If you're generally healthy and want to save for future health care expenses, an HSA may be an attractive choice. Or if you're near retirement, an HSA may make sense because the money can be used to offset costs of medical care after retirement.
On the other hand, if you think you might need expensive medical care in the next year and would find it hard to meet a high deductible, an HSA might not be your best option.
- You decide how much money to set aside for health care costs.
- You control how your HSA money is spent. You can shop around for care based on quality and cost.
- Your employer may contribute to your HSA, but you own the account and the money is yours even if you change jobs.
- Any unused money at the end of the year rolls over (stays in your account) to the next year.
- You don't pay taxes on money going into your HSA.
- Illness can be unpredictable, making it hard to accurately budget for health care expenses.
- Information about the cost and quality of medical care can be difficult to find.
- Some people find it challenging to set aside money to put into their HSAs. People who are older and sicker may not be able to save as much as younger, healthier people.
- Pressure to save the money in your HSA might lead you to not seek medical care when you need it.
- If you take money out of your HSA for nonmedical expenses, you'll have to pay taxes on it.
Your employer may offer an HSA option or you can start an account on your own through a bank or other financial institution. To qualify, you must be under age 65 and carry a high-deductible health insurance plan.
If you have a spouse who uses your insurance as secondary coverage, he or she also must be enrolled in a high-deductible plan.
This high-deductible health plan must be your only health insurance — you can't be covered by any other health insurance.
However, having dental, vision, disability and long-term care insurance doesn't disqualify you from having an HSA.
As its name implies, it's a health insurance plan that has a high deductible — the amount of medical expenses you must pay each year before coverage kicks in. These types of plans are becoming increasingly common. Businesses are more likely to offer them as their only plan or one of the limited options they provide.
While the deductible is high with this type of plan, the premium (the regular fee you pay to obtain coverage) is typically lower than it is for traditional plans.
High-deductible plans don't start paying until after you've spent at least $1,300 (for an individual) or $2,600 (for a family) of your own money on health care expenses.
You can use your HSA to pay deductible expenses, as well as copays and some other health care expenses that are determined by the individual HSA.
Not all high-deductible plans work the same. For instance, plans may pay for preventive services, such as mammograms, before the deductible is met.
It's critical to carefully review the plan's coverage details, including the out-of-pocket maximum — the limit on how much you would have to pay out of pocket for medical expenses in a year.
The Internal Revenue Service sets the contribution limits for HSAs. In recent years, the limits have been about $3,300 for individuals and about $6,600 for family coverage.
Yes, your employer can contribute to your HSA. But the total of your employer's contribution plus your contribution still must be within the contribution limits.
Yes, but there are a couple of key differences. One difference is the amount of unspent money you're allowed to roll over each year.
An HSA allows you to roll over the entire unspent amount, whereas a flexible spending account (FSA) allows you to roll over a maximum of $500 per year.
Another difference is that the money you put into an HSA is yours and you can take it with you if you switch jobs or retire. You can't take money from an employer-sponsored FSA with you if you quit or change jobs. Finally, it's important to know that in most cases you can't have both an HSA and an FSA.
It can be challenging. Right now it's difficult to get reliable information regarding the cost and quality of treatment options, doctors and hospitals.
Your employer or health plan may offer some Web-based tools or a phone number to call for some basic information.
The hope is that as health savings accounts and other consumer-directed health care options become more widespread, access to information about cost and quality will expand.
Yes, but if you withdraw funds for nonmedical expenses before you turn 65, you have to pay taxes on the money and a 20 percent penalty. If you take money out after you turn 65, you don't have a penalty, but you must still pay taxes on the money.
April 08, 2016
- Publication 969 (2015): Health savings accounts and other tax-favored health plans. Internal Revenue Service. https://www.irs.gov/publications/p969/ar02.html#en_US_2015_publink1000204025. Accessed Feb. 23, 2016.
- Sood N, et al. Price-shopping in consumer-directed health plans. Forum for Health Economics and Policy. 2013;16:1.
- Fronstin P, et al. Findings from the 2015 EBRI/Greenwald & Associates Consumer Engagement in Health Care Survey. Employee Benefit Research Institute. https://www.ebri.org/publications/ib/index.cfm?fa=ibDisp&content_id=3296. Accessed Feb. 24, 2016.
- Health Savings Accounts (HSAs) - 2015 inflation adjusted amounts. U.S. Department of the Treasury. https://www.irs.gov/irb/2014-20_IRB/ar07.html. Accessed Feb. 24, 2016.
- Nair KV, et al. Consumer-driven health plans: Impact on utilization and expenditures for chronic disease sufferers. Journal of Occupational and Environmental Medicine. 2009;51:594.
- Frequently asked questions for high deductible health plans, health savings accounts, and health reimbursement accounts. Office of Personnel Management. https://www.opm.gov/healthcare-insurance/healthcare/health-savings-accounts/frequently-asked-questions/. Accessed Feb. 24, 2016.
- State actions on health savings accounts (HSAs) and consumer-directed health plans, 2004-2015. National Conference of State Legislatures. http://www.ncsl.org/research/health/hsas-health-savings-accounts.aspx. Accessed Feb. 25, 2016.
- Reed ME, et al. In consumer-directed health plans, a majority of patients were unaware of free or low-cost preventive care. Health Affairs. 2012;31:2641.
- Reed M, et al. Consumer-directed health plans with health savings accounts: Whose skin is in the game and how do costs affect care seeking? Medical Care. 2012;50:585.
- Health savings account (HSA) vs. traditional health plan. AARP. http://www.aarp.org/health/medicare-insurance/hsa_calculator/. Accessed Feb. 25, 2016.
- Modification of "Use-or-Lose" Rule for Health Flexible Spending Arrangements (FSAs) and Clarification Regarding 2013-2014 Non-Calendar Year Salary Reduction Elections Under § 125 Cafeteria Plans. Internal Revenue Service. https://www.irs.gov/pub/irs-drop/n-13-71.pdf. Accessed March 9, 2016.
- Litchy WJ (expert opinion). Mayo Clinic. Rochester, Minn. March 8, 2016.
- Kulkarni SS. FAQ on HSAs: The basics of health savings accounts. Kaiser Health News. http://khn.org/news/frequently-asked-questions-on-health-savings-accounts/. Accessed March 9, 2016.