What is a health savings account (HSA)?

The lowdown on HSAs

Just as the name implies, a health savings account (HSA) is a financial account designed to help you save for qualified health care expenses. Not just anyone can open an HSA. You must be enrolled in a high deductible health plan (HDHP). And not just any HDHP is HSA qualified. As defined by the Internal Revenue Service, the plan must have a higher deductible than typical individual health insurance benefits plans and a maximum out-of-pocket limit, including deductibles, copays and coinsurance.

Looking for the HSA contribution limits for 2022 and 2023? 

Each year, the Internal Revenue Service (IRS) sets contribution limits for HSAs. View HSA contribution limits for 2022 and 2023 tax years.

How an HSA works

After you enroll in a high deductible health plan and set up your HSA, you can begin contributing to the account. Advantages to an HSA:

  • You own the account, not your employer. You can make deposits like you do with other personal bank accounts. Your employer might add money too.
  • The money you contribute is tax-deductible. When you make contributions, your taxable income is reduced.
  • You can invest your funds, and the interest or income is tax-free. The money can sit in your account and potentially grow over time, all of it tax-free.
  • There’s no “use-it-or-lose it” policy. Since you own the account, the funds roll over year to year and the money stays with you — regardless if you leave your job or retire.
  • If you’re under 65 and use the dollars for qualified medical expenses, you can withdraw the money tax-free.
  • If you’re over 65, there are no stipulations on how you can use the money. You can continue to withdraw the money tax-free for medical expenses. Or you can use it for non-medical expenses, just pay your regular income tax. Some people even view their HSA as an added retirement account.

If you cash out the money before you’re 65 (and don’t use the money for qualified medical expenses), you’ll have to pay taxes on the amount, and you could be hit with a hefty 20% tax penalty.

Some HSA-qualified medical expenses may include:

  • Doctor’s visits

  • Preventive care

  • Physical therapy

  • Lab tests

  • Medical equipment

  • Addiction treatment

  • Prescription drugs

  • Hospital services

  • Most dental care

  • Most vision care

The IRS determines the list of qualified medical expenses (Section 213(d) of the Internal Revenue Code). See the IRS List

The takeaway

To help make the most of your employer-sponsored benefit, understand the rules. For instance, an HSA is your money, you never lose it and it could add to your retirement. Many financial experts may advise on utilizing an HSA if you have the opportunity. When considering other options, do the math for your family to figure out what makes sense for your situation. If you still have questions, talk to your company’s Human Resources representative.

Sign up for an HSA today

  1. Check with your employer to find out your options. 
  2. If an HSA is not available, explore your options at Optum Bank® , the UnitedHealthcare bank of choice.

Or, learn more about Health Savings Accounts.

Know the differences between HSA, HRA, FSA

The difference between HSAs, HRAs, and FSAs

Compare the details about Health Savings Accounts (HSA), Health Reimbursement Accounts (HRA) and Flexible Spending Accounts (FSA) to learn which one may be right for you.

Can I use my HSA, HRA and FSA together?

The simple answer is this: It depends on your circumstances. There’s no easy or “right” answer. It gets tricky due to the possibility of double-dipping.

Using an FSA + HRA together

You can use an FSA and HRA together. If you have an FSA, expenses typically come from that account first. Funds from the HRA are then used to cover other medical expenses.

Using an FSA + HSA together

It’s uncommon to have an FSA and HSA at the same time, but not impossible. One exception to this rule is pairing an HSA with a limited-purpose FSA (also called an HSA-compatible FSA, or post-deductible FSA). In this case, you can use your limited-purpose FSA only for certain expenses, like dental or vision care, until you reach your health plan’s deductible. By tapping into your limited-purpose FSA first, you can save more of your HSA dollars for future expenses.

Using an HRA + HSA together

You can use an HRA and an HSA at the same time if you are enrolled in a high deductible health plan (HDHP), but the IRS has specific rules as to how they work together. For example, you can’t use HSA funds to cover medical expenses that were reimbursed by your employer in an HRA. You can also use them together if you opt out of your HRA reimbursement of qualified medical expenses (you can keep reimbursement for premiums). Review your health plan details to learn more.