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WHAT IS AN HSA?
HSA > Individuals & Families > Overview
The term "HSA" refers to a Health Savings Account as defined by federal tax law. This tax law allows participants to use pre-tax dollars to pay for qualified out-of-pocket medical
expenses. Since the money belongs to the participant and not the employer or insurance company, funds are not lost if not used by a certain date. Instead, the funds continue to grow with time
like an IRA, so money is there when needed.
How Do HSAs Work?
The tax law that governs this program defines two separate and distinct components - health insurance and health savings. Some
people use the term "HSA" when referring to the insurance component of this law, and that is where it can get confusing.
1. Health Insurance
The health insurance component must meet certain standards of the tax law. A qualified health insurance plan is called a High Deductible Health Plan
(HDHP). This kind of insurance is correctly referred to as an "HSA eligible plan" but is not an HSA itself.
2. Health Savings
A health savings is a bank savings plan established for individuals and families to set aside money for qualified future health expenses. This plan has
certain tax benefits and limitations defined by federal law.
One Without The Other?
While individuals and families that have a High Deductible Health Plan (HDHP) qualify to open a Health Savings Account (HSA) plan, such action is
not required.
On the other hand, individuals and families cannot open a Health Savings Account (HSA) without having a qualified High Deductible Health Plan (HDHP) currently in place.
High Deductible
Not all health insurance plans that have high deductibles meet the tax law requirements to be labeled as a High Deductible Health Plan (HDHP). The
insurance plan must specify that it is an HDHP or "HSA eligible plan" for participants to be able to open a Health Savings Account.
Not Everyone Is Eligible to Open an HSA
There are some situations that prevent a person with an HDHP from being allowed to open a Health Savings Account. The most common
situations that disqualify individuals are:
- Other insurance coverage. If a person is covered under additional insurance, such as a plan provided by the employer of another family member. (Click here for more information.)
- Age 65 or older and enrolled in Medicare. (Click here to see important information on this subject.)
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