What is a Health Savings Account (HSA)?
A health savings account, also known as an HSA, is a tax-exempt savings account that, when paired with a qualified high-deductible health plan (QHDHP), can be used to pay for certain medical expenses. Funds deposited are not taxed, nor are withdrawals for qualified expenses.
To use an HSA with your health insurance plan, you need to enroll in a QHDHP, also known as an HSA-compatible health plan. It’s important to know that not all high-deductible health plans are qualified. The Internal Revenue Service (IRS) defines what makes a plan qualified. These requirements can change, so be sure to check that your high-deductible plan is a qualified high-deductible plan.
What are the Benefits of Having an HSA?
HSAs have many benefits, like:
- Money goes in tax-free. Your HSA contributions are made on a pre-tax basis, making savings immediate. Your HSA contributions are also tax deductible.
- Money comes out tax-free. Eligible healthcare purchases can be made tax-free when the HSA is used. Purchases can be made directly from the HSA account, either by using a healthcare debit card (if included with your HSA), ACH, online bill-pay or check; or, you can pay out of pocket and reimburse yourself from your HSA.
- Earn interest, tax-free. The interest on HSA funds grows on a tax-free basis. Unlike most savings accounts, interest earned on an HSA is not considered taxable income when funds are used for eligible medical expenses.
- Your HSA balance can be carried over year after year. Unlike a flexible spending account (FSA), an HSA is not a use-it-or-lose-it account. Your balance can continue to grow year after year.
- An HSA balance can be invested. Depending on your HSA, you may be eligible to invest your HSA similar to a 401K or IRA - in an interest-bearing account, a mutual fund, stocks or bonds.
- You can use your HSA to help add to your retirement funds.—After you turn 65, you can withdraw funds from your HSA for any reason without penalty.
How Do I Set Up an HSA?
To set up an HSA, contact your employer's HR department to see if they have an arrangement with or can suggest a financial institution that offers HSAs. Your insurer can also recommend or may offer an HSA account
Most major financial institutions can offer HSAs, so you may be able to open an HSA through your bank. Make sure you understand what fees, if any, will be charged for maintenance of the account. Medical Mutual members who are enrolled in a QHDHP and select the Medical Mutual HSA are not charged monthly administrative fees.
Once you've enrolled in a qualified high-deductible health plan and have chosen where you'd like to set up your account, you can complete the application process and set up funding for the account. Rules and guidelines for contributing to your HSA are covered in more depth in our HSA FAQs.
What Can I Pay for Using an HSA?
HSAs may be used to pay for various medical expenses. Here’s a partial list of qualified medical expenses from the IRS (based on IRS Section 213 and listed in Publication 502):
- Health insurance plan deductibles, copayments and coinsurance
- Prescription drugs
- Dental services including braces, bridges and crowns
- Vision care including glasses and Lasik eye surgery
- Psychiatric and certain psychological treatments
- Long-term care services
- Medically related transportation and lodging
- Certain health premiums, including COBRA
Health Savings Accounts (HSAs) from Medical Mutual
If you enroll in a Medical Mutual HSA-compatible, high-deductible health plan, you have the option to set up a Medical Mutual HSA. The Medical Mutual HSA provides a more efficient and affordable way to manage your healthcare benefits and your HSA. The Medical Mutual HSA has no monthly administrative fee and is managed by an Ohio-based team.
Through My Health Plan, Medical Mutual's secure member website, you can manage your HSA and your health plan in one convenient location using your computer, tablet or smartphone.
When you log in, you can:
- Transfer money electronically to fund your HSA
- Upload and record necessary medical receipts
- View your account balances
- Monitor your claims
- Track expenses against your deductible
If you don’t want to open a Medical Mutual HSA, you can open an account with another financial institution, but fees may apply.
Is an HSA Right for Me?
An HSA may be right for you if are willing to set up the account and have money to fund it. Conventional wisdom is to contribute as much as you can, up to the contribution limit ($3,450 for individuals and $6,850 for families in 2018). If you can’t afford to contribute that much, it’s a good idea to contribute anything you can to help you save money down the road.
If you have health insurance through your employer, the company may contribute some money to your HSA. Check with your employer’s Human Resources or Benefits department.
Since HSAs and qualified high-deductible health plans go hand-in-hand, you must also determine if a high-deductible health plan fits your needs. We've created a video that compares HDHPs with traditional copay plans to help you decide.
Get more details on HSAs in our HSA Rules and Guidelines FAQs, including tax considerations, contribution rules and limits, and other HSA topics.