What Is a Health Savings Account?

A health savings account (HSA) is a savings account used by people enrolled in high-deductible health plans to cover medical and health expenses. Although the Affordable Care Act of 2009 (ACA) increased accessibility to health insurance, individuals and families still face steep health care costs. A health savings account is a tool that helps qualified people and families cover these costs.

This article will help you understand HSAs, how they work, and their financial benefits. If you’re unsure whether you qualify or how contributions work, a healthcare law lawyer near you can help you understand your options.

Health Savings Accounts Basics

Health savings accounts function like regular savings accounts in many ways. For example, major financial institutions like banks and credit unions offer HSAs. Some health insurance companies also offer HSAs. HSAs differ from regular savings accounts in eligibility. Only people and families enrolled in high-deductible health plans (HDHP), defined by the Internal Revenue Service (IRS), can open an HSA.

A Health Savings Account Is Not Health Insurance

It is important to note that an HSA is not health insurance. It is a savings account that can help you pay health care costs. Your HSA should not have any bearing on the following

• Your health coverage
• The types of health care professionals you can see
• Referrals to specialists
• The privacy of your health information

Federal laws such as the Health Insurance Portability and Accountability Act (HIPAA) do not change based on your health insurance plans or ability to pay.

High Deductible Health Plan

An HDHP, as the name suggests, is an insurance plan with a high deductible. In the insurance world, a deductible is the amount the insured must pay before the policy pays. Consider, for example, car insurance. If your car insurance has a $500 deductible, and you get into an automobile accident with damages, you must pay $500 before your insurance plan pays anything.

The other feature of an HDHP is the high total annual expenses, including:

• Copayments
• Co-insurance

These out-of-pocket expenses must be within the IRS’s limits for individuals or families. These amounts may change yearly; you can check with the IRS for more information.

How Do Deductibles Work in Health Care?

In health insurance, a deductible is the amount of money the insured pays before the insurance starts to cover any medical costs. If your deductible is $1,000, you must pay $1,000 in health care costs before your health insurance plan pays out. So, if you see a physician in early January for a physical and your bill is $385, your insurance will not cover any of that bill unless you first meet your deductible.

HDHPs have high deductibles and lower monthly health insurance premiums. You are responsible for out-of-pocket costs until you have met this deductible. Health savings accounts help you cover these out-of-pocket costs.

Qualifying for an HSA

Besides enrollment in an HDHP, you must adhere to the following guidelines:

• You can’t have other insurance (unless it meets an IRS-defined exception)
• No one can claim you as a dependent on their income tax return
• You can’t enroll in Medicare

HSA Benefits

Although HDHPs feature high deductibles, HSA offers several benefits to account holders. These benefits include, but are not limited to, the following:

• Tax-free
• HSA funds do not expire
• You can use HSA funds for family members’ health care costs
• You won’t lose your HSA funds if you retire or change jobs

Tax Benefits

HSAs have direct and indirect tax benefits. Account holders fund their HSAs with pre-tax funds, which can grow tax-free. You do not have to pay taxes on withdrawals for qualified medical expenses.

And since money contributed to an HSA isn’t taxable, using an HSA could put you in a lower tax bracket and reduce your tax burden.

Qualified Medical Expenses

Generally, qualified medical expenses for HSA purposes include those incurred by:

• You and your spouse
• Dependents claimed on your tax returns
• Anyone you could have claimed as a dependent on your tax return but who
• Filed a joint tax return,
  • Had a gross income of more than $4,050, or
  • Could be claimed as a dependent on someone else’s tax return

IRS Publication 502 offers more detailed guidance on what qualifies as a medical expense for an HSA.

Qualified medical expenses include, but are not limited to, the following:

• Prescription drugs
• Ambulance
• Direct medical care with a qualified health care provider
• Mental health care services
• Preventive care
• Long-term care services (qualified)

Using a Health Savings Account

The first step in opening and using a health savings account is enrollment in an HDHP. Once you complete your enrollment, you can open an HSA. You can access HSA-eligible health insurance plans through the federal health care exchange at Healthcare.gov.

HSA Contributions

As long as you do not have other disqualifying health care coverage, you can contribute to your HSA. Almost anyone can contribute to your HSA, including the following:

• Your employer
• Household members
• Family members

The federal government places limits on annual contributions, so check with the IRS or a financial professional to ensure you stay within these contribution limits. For 2026, the maximum annual contributions are $4,400 for individuals and $8,750 for families.

Individuals and couples over 55 can make “catch-up” contributions of $1,000 per year to their HSA. If their spouse is over 55, they can contribute to their own HSA account.

Recordkeeping

You must record all expenses you pay with your HSA withdrawals in case the IRS decides to audit you. Keep your receipts and other documentation as proof of your qualified expenditures.

Health Savings Accounts vs. Flexible Spending Accounts

Many confuse Health Savings Accounts (HSA) with Flexible Spending Accounts (FSA). They are not the same. One significant difference is the source of these accounts. You can set up your own HSA (as long as you have an HDHP), but only your employer can set up and offer you an FSA.

Your employer sets the contribution limit, and you can contribute pre-tax income. Finally, your employer decides how to treat unused FSA funds. They can give you two and a half more months to spend any leftover funds or allow you to roll over up to $640 for the following plan year.

Confused About an HSA? Get Legal Help

A health savings account is a valuable tool for managing your health care costs. A qualified health care attorney can help you understand the nuances of eligibility and contributions. Speak to an experienced healthcare lawyer today.

FindLaw’s directory of healthcare attorneys can get you started. Enter your city or ZIP code for a list of qualified legal professionals near you. Because some of your state’s laws are relevant, your attorney should be licensed in your state. Your search results will also show important details about prospective attorneys, like ratings and whether they offer free case evaluations.