Hummingbird: HSAs are only available through an employer that offers medical insurance, and they are attached to high-deductible plans. You are limited by how much money you can add to your HSA each calendar year. Account owners usually access their savings to pay doctors and other medical-related bills via a debit card.
What Is an HSA?
A Health Savings Account (HSA) is a tax-free medical savings account offered only through employers. It accrues interest and covers qualified healthcare expenses. U.S. employees who opt for a high deductible health plan (HDHP) are eligible to establish an HSA and contribute to it, usually through payroll deductions.
Although the plan is offered by an employer, the employee owns the HSA account and can fund it with pre-tax income. To encourage participation in the HDHP, employers are permitted to offer contributions to each employee’s HSA account.
The accrued savings are available to pay for qualifying medical expenses. At the end of the calendar year, any account balance rolls over to the next year. There is no use-it-or-lose-it component.
HSA vs. FSA
Like an HSA, a Flexible Spending Account (FSA) allows you to save a portion of your pre-tax earnings to cover qualified expenses, including medical. Your employer can contribute to either tax-advantaged health plan to expand your coverage and benefits.
The main difference between an HSA and an FSA is that FSA savings only provide one year’s coverage. Unused FSA funds at the end of the year don’t usually roll over to the next.
An HSA is a worthwhile investment in health coverage. It lets you pay for certain current or future healthcare expenses. Benefits of having the medical savings account include:
- It can cover your everyday medical costs for which you would typically pay out of pocket, including deductibles and coinsurance.
- It is a smart way to reduce your income tax. Any funds drawn from your pay before tax to an HSA and used to pay for eligible medical expenses are tax exempt.
- You may receive a tax refund for an HSA contribution made with your after-tax pay.
- An HSA account has a potential for growth with the year-to-year rollover of unused funds.
- HSA funds accrue interest over time, which is tax exempt in most states (exemption applies to qualified medical expenses only).
- An HSA account includes optional investment components you can leverage to grow your fund and expand your coverage. These may include mutual funds, stocks, and bonds. You do not have to maintain a minimum balance in your self-controlled HSA investment account.
- With your HSA interest-accruing savings and investments, you are also building an extra retirement fund that you could leverage for any use after age 65 and without a penalty.
How Does an HSA Work?
HSAs are usually set up through a bank, and account owners tap into their money through a debit card, although checks are sometimes available. As money builds up in the account, employees can pay for doctor copays, lab bills and out-of-pocket expenses with money from the account.
Most employees use the debit card.
Start with an HDHP
An HDHP is a low-cost health insurance cover that requires you to pay higher deductibles than traditional health plans. If your employer doesn’t provide the plan, you may obtain it privately.
Once you have your qualified HDHP, you may combine it with an HSA account to pay for tax-exempt medical expenses that the former doesn’t usually cover.
Only U.S. taxpayers (individuals with a valid Social Security Number (SSN) and whose primary residence is the U.S. are eligible for an HSA account. Before attempting to sign up, make sure you’re not covered by TriCare, Medicare Part A or Part B, or any traditional health insurance.
Also, check your claims history with the Veterans Administration (VA), if any. You may not qualify for HSA if the VA has compensated you for non-service-related medical damages/costs within the past three months.
Recall that an HSA will not provide coverage to you if somebody other than your spouse has named you as a dependent on their tax return.
Multiple parties can contribute to an HSA, depending on how the account is set up. If you have an employer-sponsored plan, both you and your employer can fund it, pre-tax if possible. An individual like you may also make contributions on behalf of an eligible family member.
As per the latest IRS HSA contribution guidelines, you can contribute a maximum of $3,650 for a single plan and $7,300 for a family plan, a year.
You can withdraw your HSA funds at any time to pay for qualified health care costs. Your savings remain available for future medical costs incurred while you’re still covered.
What Can I Pay for With HSA Funds?
As with most insurance plans, HSA only covers healthcare costs that are deemed medically necessary. It’ll often kick in after you’ve exhausted your HDHP coverage.
With your HSA funds, you can pay for these IRS-qualified vision expenses:
Eye Doctor Fees
Sometimes, you must see an eye specialist like an optometrist or ophthalmologist for vision care. HSA can cover a portion of the cost, such as appointment fees.
Vision Insurance Copays and Deductibles
Copays and deductibles are the out-of-pocket expenses that your HDHP plan doesn’t cover. These expenses are included in your HSA coverage.
Laser Eye Surgery
Laser-assisted in situ keratomileusis (LASIK) is the surgical correction of the shape of the cornea. In some cases, the procedure is necessary to treat nearsightedness, farsightedness, or astigmatism (distance and near vision problems).
HSA covers prescription eyewear for vision correction, including reading glasses, lenses and frames.
Diagnostic procedures like visual acuity tests, slit-lamp exams, and retinal assessments are a crucial part of vision care. If your optometrist, ophthalmologist, or optician recommends any such tests, you may cover the cost with an HSA.
HSA covers certain prescription drugs, such as pain relievers, antibiotics for eye infection and anti-inflammatory eye drops needed after eye surgery.
Health Savings Account FAQs & Rules. (2022). HSA Bank.
IRS Guidelines, Contribution Limits and Eligible Expenses. (2022). HSA Bank.
LASIK Eye Surgery. (September 29, 2021). Mayo Clinic.
Eye Exam. (April 10, 2021). Mayo Clinic.
Last Updated July 1, 2022
Note: This page should not serve as a substitute for professional medical advice from a doctor or specialist. Please review our about page for more information.