An HSA insurance plan is a high-deductible health insurance paired with a Health Savings Account

An HSA insurance plan is a type of health insurance that has a higher deductible than traditional plans, combined with a savings account where you set aside pre-tax money for medical costs. The insurance covers major medical events — hospitalizations, surgeries, serious illnesses — after you meet the deductible. The savings account lets you pay for smaller expenses like doctor visits, prescriptions, and dental work without using after-tax dollars.

The insurance piece and the savings account piece work together. You pay lower monthly premiums because the deductible is higher, but you get a tax-advantaged way to cover the gap between your premium and the deductible. Money you put into the HSA reduces your taxable income, grows tax-free if invested, and can be withdrawn tax-free for medical expenses.

Not all high-deductible plans may have access to for an HSA. The plan must meet specific rules set by the IRS: the deductible must be at least $1,600 for individual coverage or $3,200 for family coverage in 2024 (these amounts change yearly). The plan must also have an out-of-pocket maximum — a cap on what you pay before insurance covers everything — and cannot offer certain types of coverage before you meet the deductible.

Key Takeaways

  • An HSA plan combines high-deductible insurance with a tax-advantaged savings account for medical expenses.
  • You pay lower monthly premiums but must meet a higher deductible before insurance covers most care.
  • Money in the HSA account is not taxed when you contribute it, grows tax-free if invested, and is not taxed when you withdraw it for medical costs.
  • Only certain high-deductible plans may have access to for an HSA; the plan must meet IRS rules about deductible amounts and coverage limits.
  • You can use HSA funds for a wide range of medical, dental, and vision expenses, and unused money rolls over year to year.

How the insurance coverage works once you meet the deductible

Once you pay out of pocket up to your deductible amount, the insurance starts to pay its share of your medical bills. The exact split depends on your plan — some plans pay 80 percent and you pay 20 percent, others use different percentages. This shared payment continues until you reach your out-of-pocket maximum, which is the total amount you will pay in a year for covered services (not counting premiums).

After you hit the out-of-pocket maximum, the insurance covers 100 percent of covered medical services for the rest of that calendar year. This protects you from catastrophic costs if you have a serious illness or injury. The out-of-pocket maximum for 2024 is at least $3,500 for individual coverage and $7,000 for family coverage, though your specific plan may have a higher limit.

Preventive care — annual physicals, certain screenings, vaccinations — is usually covered at no cost before you meet the deductible. This is a federal requirement for all health insurance plans. You can use HSA funds to pay your deductible and the coinsurance (your percentage of costs after the deductible), but you cannot use them to pay your monthly premium.

What expenses you can pay from your HSA account

The HSA account can pay for a broad list of medical, dental, and vision expenses. Common uses include copays and coinsurance for doctor visits, hospital stays, and emergency room care; prescription medications; dental work like cleanings, fillings, and orthodontia; eyeglasses, contact lenses, and eye exams; and hearing aids and related care. You can also use HSA funds for over-the-counter items like pain relievers, allergy medicine, and bandages if you have a prescription or letter from your doctor stating medical necessity.

Some expenses do not may have access to. Cosmetic procedures, gym memberships, and over-the-counter items without a medical prescription are not covered. Long-term care insurance premiums have limits on how much you can pay with HSA funds. Health insurance premiums themselves — your monthly payment — cannot be paid from the HSA, with narrow exceptions for COBRA continuation coverage, Medicare premiums, and military health coverage.

You do not have to spend down your HSA each year. Unlike a Flexible Spending Account (FSA), which has a "use it or lose it" rule, HSA money rolls over indefinitely. This makes the account function like a retirement savings tool for medical expenses — you can invest the balance and let it grow over decades.

How much you can contribute to the HSA each year

The IRS sets annual contribution limits that change each year. For 2024, you can contribute up to $4,150 if you have individual coverage or $8,300 if you have family coverage. These limits apply to all contributions combined — money you put in, money your employer puts in, and money anyone else contributes on your behalf all count toward the same limit.

If you are age 55 or older, you can contribute an additional $1,000 per year (called a catch-up contribution). This extra amount is available only to the account holder, not to spouses, even if they are also 55 or older and covered under a family plan.

You can contribute to an HSA only during months when you are covered by an HSA-may have access to high-deductible plan. If you switch to a different type of insurance mid-year, you can only contribute a prorated amount for the months you were covered. If you lose HSA coverage, you can no longer add money to the account, but you can still withdraw funds for medical expenses.

HSA plans compared to other high-deductible options

An HSA plan differs from a Preferred Provider Organization (PPO) or Health Maintenance Organization (HMO) plan mainly in the deductible structure and the savings account component. A traditional PPO or HMO may have a lower deductible but higher monthly premiums and no tax-advantaged savings account. You pay for care out of pocket up to the deductible, then the plan shares costs with you, but there is no special tax treatment for the money you spend.

A Flexible Spending Account (FSA) is similar to an HSA in that it lets you set aside pre-tax money for medical expenses, but FSAs have a "use it or lose it" rule — money not spent by the end of the year is forfeited (though some plans allow a small carryover). FSAs also do not require a high-deductible insurance plan and are usually offered only through employers. HSAs are portable: you own the account and can take it with you if you change jobs.

Health Reimbursement Arrangements (HRAs) are employer-funded accounts that work somewhat like HSAs but are owned by the employer, not you. If you leave the job, you typically lose access to the remaining balance. HSAs give you more control and portability because you own the account outright.

Tax advantages and how they work

The main tax benefit of an HSA is that contributions reduce your taxable income. If you contribute $3,000 to your HSA in a year, you report $3,000 less in income to the IRS. This lowers your federal income tax bill. If your employer contributes to your HSA, that money is not counted as taxable income to you either.

Money inside the HSA can be invested in mutual funds, stocks, or other investments (depending on what your HSA provider offers). Any growth or interest earned is not taxed. When you withdraw money to pay for a medical expense, that withdrawal is also not taxed. This triple tax advantage — no tax on contributions, no tax on growth, no tax on withdrawals for medical costs — is unique to HSAs.

If you withdraw HSA money for a non-medical expense before age 65, you owe income tax on the withdrawal plus a 20 percent penalty. After age 65, you can withdraw money for any reason without the penalty, though you still owe income tax on non-medical withdrawals. This makes the HSA function like a retirement account after 65.

Who can open an HSA and enrollment timing

To open an HSA, you must be covered by an HSA-may have access to high-deductible health insurance plan. You cannot have other health coverage at the same time — with narrow exceptions for specific types of coverage like dental-only or vision-only plans, workers' compensation, or coverage for a specific condition. You also cannot be claimed as a dependent on someone else's tax return, and you cannot be enrolled in Medicare.

You can open an HSA through your employer if they offer one, or you can open an individual HSA through a bank, credit union, or insurance company. Many HSA providers have no monthly fees, though some charge a small maintenance fee. You can shop for different providers even if you already have an HSA — you can open a new account and roll over the balance from your old account.

Enrollment in an HSA-may have access to plan typically happens during your employer's open enrollment period (usually in fall for coverage starting January 1) or during the federal open enrollment period for individual plans (usually November through January). Once you are covered by the plan, you have until the tax filing deadline (usually April 15) of the following year to open an HSA and make contributions for that year.

Frequently Asked Questions

Can I use my HSA to pay for my spouse's medical expenses?

Yes. HSA funds can be used to pay for medical expenses of you, your spouse, and your dependents, even if they are not covered under your HSA-may have access to insurance plan. The person receiving the care does not have to be on your health insurance — only the account holder needs to be covered by an HSA-may have access to plan.

What happens to my HSA if I change jobs?

Your HSA stays with you. The account is yours, not your employer's, so you keep the money and can continue to use it for medical expenses. You can roll the balance to a new HSA provider if your new employer offers a different one, or you can keep your existing account open. You can no longer contribute to the HSA once you lose coverage under an HSA-may have access to plan, but you can withdraw funds anytime for medical expenses.

Can I invest the money in my HSA?

Many HSA providers allow you to invest your balance in mutual funds or other options, though some require you to keep a minimum amount (like $1,000 or $2,500) in cash. Investment options vary by provider. If you invest and the value drops, you can still withdraw the full amount for medical expenses — the loss does not affect your ability to use the funds.

Do I have to submit receipts to use my HSA?

You do not have to submit receipts when you withdraw money, but you should keep them. The IRS can audit your HSA use years later and ask you to prove that withdrawals were for medical expenses. If you cannot document that a withdrawal was medical, you may owe income tax and penalties on that amount.

Can I use my HSA to pay for health insurance premiums?

Generally no — your monthly health insurance premium cannot be paid from an HSA. Exceptions exist for COBRA continuation coverage (if you lose employer coverage), Medicare premiums (once you turn 65), and military health coverage premiums. Dental and vision insurance premiums also cannot be paid from an HSA.