What is a Health Savings Account (HSA)?

Your health is important. You should feel comfortable visiting your doctor without your purse strings feeling like a noose. A health savings account, or HSA, can help ensure you have the funds you need when it comes to medical-related expenses.

What Is It?

An HSA is a tax-advantaged savings account specifically for qualified medical expenses. Let’s break that down. “Tax-advantaged” in this case means the contributions you put into this type of savings account reduces your taxable income. So, if your salary was $50,000 a year and you contributed $2,000 toward your HSA, then the taxable income is $48,000.

“Savings account” is exactly what it says. This is a specific account your money goes into and receives dividends on the amount. This amount is put away and not touched until you have a “qualified medical expense.” These types of expenses can range from copays to medication to bandages. If the money is not used on a qualified medical expense, you can be penalized. A list of qualified expenses can be found on the IRS website.

Who Can Qualify?

To take advantage of this savings account, you must enroll in a high deductible health plan, or HDHP. This type of health plan is great for those who do not need to visit the doctor often because the biggest drawback for this plan is the high deductible. That’s where the HSA comes in. An HSA is meant to pair with an HDHP to help offset the costs.

After you have enrolled in your HDHP, you still need to meet these requirements to be eligible for an HSA:

  • Have no other medical coverage, like Medicare
  • Not be claimed as a dependent on someone else’s tax return
  • Not have a flexible spending account (FSA) that provides duplicate coverage

How It Works

The money you contribute to your HSA builds and builds. Even if you have not spent all the money in your HSA at the end of the year, it will roll over for the next calendar year. This allows HSA participants to build a nest egg for their medical expenses. The goal should always contribute and have enough money in your HSA to cover your high deductible for a year. Once you hit your deductible, your medical expenses are usually covered by your insurance at that point!


To save and build your HSA, you need to make contributions. These contributions are 100% tax deductible from your income. Some employers make contributions on your behalf, or that you can add to. Just make sure you don’t go over the contribution level set by the IRS. This could incur a 6% penalty fee. To find the current limits, visit the U.S. Department of the Treasury’s website.

Using Your HSA

So, you have enrolled in an HDHP with an HSA and are ready to visit your doctor. You simply give your doctor a copy of your insurance card so they can bill your insurance accordingly. From there, you will receive a bill for what your insurance does not cover. This is when you can use your HSA. Most HSAs allow their participants to have a debit card to pay for their qualified expenses. You will use your HSA debit card to pull the funds and pay for the services. It’s that simple.

In a sense, no money is “taken from your pocket”. This is because an HSA is designed as a “set it up and forget about it” kind of account and is there when you need it. Next time you enroll in health insurance, do not dismiss the HDHP/HSA option; it might be a great fit for your lifestyle.