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

Like many Americans, Michele Hosner has a high-deductible health plan (HDHP). She likes the low monthly premiums and wants to use her savings to fund her 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 the HSA for her deductible, prescriptions and routine expenses like over-the-counter allergy medications. When her toddler suffered a minor injury, Michele was able to use the account to cover an unexpected emergency room visit. “I was glad I had the money put aside to pay for this,” she says.

What is an HSA?

Michelle is one of a growing number of 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 Michael DiSimone, CEO of PayFlex, part of the CVS Health family of companies and a benefits provider for more than 30 years.

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 often, 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 you need to pay for everyday out-of-pocket health care expenses 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 DiSimone.

The benefits of HSAs

For 2021, individuals can contribute up to $3,600, and families up to $7,200, to their HSA each year. And 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,” DiSimone says.

What types of health care expenses are HSA eligible?

You might be surprised by how many expenses are HSA eligible. In addition to paying for doctors’ visits, prescriptions 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.
• Over-the-counter drugs including allergy medicine, cold medicine and pain relievers.
• Tampons, pads and other feminine hygiene products.
• 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’ and other qualified dependents’ 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 many benefits of an HSA can help you make smart decisions about spending and saving your health care dollars. An HSA is a great way to help you plan, save and pay for your personal well-being.

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 greater. “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, your spouse age 55+ or children ages 18-26 can open their own HSA with PayFlex. Learn more about HSAs on the PayFlex site.