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What's an HSA, and why should you have one?

Alice Gomstyn By Alice Gomstyn
man applies band aid to boy

Like many Americans, Michele Hosner has a high-deductible health plan (HDHP). She likes the low monthly premiums, but wants to be smart about saving for the deductible and other medical expenses that might come up. That’s why she’s a big fan of her health savings account (HSA).

The mother of two from Pittsburgh uses her HSA for copays and routine expenses like over-the-counter allergy medications. And when her toddler got a cut, she was able to use the account to cover an unexpected emergency room visit. “I was glad I had the money socked away,” Michelle said.

 

What is an HSA?


Michelle is one of a growing number people taking advantage of an HSA. Paired with a qualified HDHP, an HSA allows you to contribute pre-tax earnings to a federally insured savings account. The funds can be used for current medical expenses or saved for the future. Your HSA belongs to you, and the money in your account stays with you year-to-year, through job changes and into retirement.

 

Despite their popularity, there’s still a lot of opportunity for HSA holders to make the most of their accounts. “Many people who have an HSA don’t understand the full breadth and depth of what it can do for them,” says Erin Hatzikostas, president of PayFlex, a leading HSA plan administrator owned by Aetna.


An HSA is different from an FSA


HSAs were first introduced to the public in 2004. They’re often confused with FSAs, or flexible spending accounts, which date to the 1970s. FSAs also allow you to use pre-tax dollars, usually deducted from your paycheck, for medical expenses. But FSA funds must be used by the end of a calendar year, or you lose them.

HSAs are different. The money you contribute to an HSA has no “expiration date.” You can withdraw funds a week after you contribute them or save them for care you may need years down the road. “Most people are coming from an FSA world, which is ‘use it or lose it.’ That’s a mentality we’re trying to change,” says Hatzikostas.


The benefits of HSAs


As of 2019, individuals can contribute up to $3,500 and families up to $7,000 to their HSA each year. People over 55 can contribute an extra $1,000 annually. HSAs have a triple tax benefit. Funds go into your HSA pre-tax, reducing your taxable income. Withdrawals for qualified expenses are also tax-free. And if your HSA includes the option to invest the funds in your account, the earnings are tax-free as well. “It can be a really great vehicle for saving for the future,” said Hatzikostas.

 

What is HSA eligible?


You might be surprised by how many expenses are HSA eligible. In addition to paying for doctors’ visits, copays and coinsurance, HSAs can be used for a wide variety of other expenses, including:

 

  • First aid and health monitoring supplies: bandages, compression socks, blood pressure cuffs and glucometers.
  • Some over-the-counter medicines, including treatments for acne and allergies.
  • Drug addiction treatment.
  • Complementary treatments, such as chiropractor visits and massage.
  • Glasses and contact lenses, and many vision supplies like safety goggles, sunglasses and contact lens solution.
  • Many fertility and maternity services, including IVF, breast pumps and breast milk storage bags.
  • Your kids’ health expenses, even if they’re not on your health plan.


If you have an HSA or are considering opening an account, educating yourself on the rules and benefits of HSAs can help you make smart decisions about spending and saving your health care dollars. It’s a good idea to check in with your plan about eligible expenses, which can change from time to time. You may need a Letter of Medical Necessity (LOMN) from your doctor for things like chiropractic appointments. And some expenses, including over-the-counter medications may require a prescription to be HSA eligible.


Learn more about today’s HSA-eligible expenses.


Michele was delighted to learn that sunscreen can be purchased with HSA funds, as long as it’s SPF 30 or more. “We go through a lot of sunscreen,” she said. “The fact that we can use our HSA account to pay for it was a happy surprise.”

If you have an HSA through PayFlex, learn about investment options, and for general information, check out Payflex’s HSA Frequently Asked Questions page.