What Is a Health Savings Account?

If you’re young and just starting out in life or a ‘seasoned’ veteran, you have many things in common–one of which is the desire to assure your family is protected in case of emergency. That means insurance coverage…enough to cover you in the event of unexpected trouble. You can’t be too careful. Without insurance the first medical disaster will wipe you out, and it may take years to catch up. In order to protect yourself from possible financial ruin it’s advisable to make sure you’re covered in case of disaster. Of course, that’s not always possible, especially in this economy, and particularly if you’re recently married or out on your own for the first time. Money may be tight. You’ve saved a little for a rainy day, but you know it won’t be enough if something terrible happens. Is there a way to protect yourself and your family’s medical needs? Yes there is. It’s called a health savings account (HSA.)

What Is an HSA?

A health savings account may be just what the doctor ordered…if you meet the requirements. HSAs came into being as part of the Medicare Prescription Drug, Improvement and Modernization Act, commonly called the Medicare Modernization Act (MMA) in 2003. Basically, a health savings account is a bank account you open with your money (your employer may also contribute) and is kept on account for a specific purpose–health care for you and your family. You can add to it at any time and draw on it when needed. There are some terrific advantages to a HSA, but in order to qualify certain conditions must be met.

HSA Advantages

It is more than a simple savings account. Deposits into a health savings account are made with your funds before taxes are deducted. Interest on these savings is tax free, and any money you remove from the account to pay for medical expenses is not taxable. The money in your health savings account continues to draw interest as long as it is in the account. If you move or simply change banks, your HSA goes with you. It’s your money. As long it’s in the account, it continues to work for you.

Most banks will let you use some of the money in your health savings account to invest in stocks, bonds, or mutual funds so that you can make even more off it. If you hold onto your HSA until after you retire, you can also withdraw the funds for non medical purposes without a penalty. Similar to an IRA, health savings account funds may be subject to penalties for early withdrawal if used for a non medical purpose.

Withdrawing money from your health savings account is permissible for a variety of medical reasons ranging from lab fees to surgery, and may include anything that has to do with the diagnosis or treatment of a disease.

Requirements and Limitations

There are certain prerequisites that must be met to qualify for the benefits of a health savings account.

* Enrollment in an insurance plan with a high deductible is required for an HSA. Carrying a High Deductible Health Plan (HDHP) usually means making lower monthly payments, which is another advantage for having the HSA. There is, however, a caveat–you aren’t allowed to carry an additional medical plan that doesn’t include a high deductible.
* You must not be eligible to receive Medicare benefits, and you can’t be claimed as a dependent on anyone else’s tax return.
* You must not have received benefits from the VA during the previous three months, nor can you be eligible for Tricare, which is an insurance program for military veterans.
* There may be limitations as to the amount that can be placed in a HSA in any given year.
* You take the risk of the necessity of remaining in relatively good health while your HSA grows. In the beginning there won’t be a lot in the account, but your savings will grow if the money remains untouched.

Do Your Homework

Before jumping into a health savings account, weigh the risks against the rewards. You may discover that having a HSA is worth it. Everyone’s needs are different. A health savings account may not be for you, but the only way to find out is to study all the pros and cons and make an educated choice.

Guest post from Bailey Harris. Bailey writes for the Health Insurance Blog.


  1. says

    I love that health savings accounts help keep the medical community responsible regarding their prices. Consumers, when they have to look at the actual cost of medical services, will shop around instead of blindly saying “charge my insurance company.” Cool stuff!


Leave a Reply

Your email address will not be published. Required fields are marked *