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What Is an HSA?

 

How HSAs Work

A Health Savings Account, or HSA*, allows members of certain health care plans to use pre-tax money to pay for qualified health care costs. A member with an HSA has a High Deductible Health Plan (HDHP). These plans are available to consumers looking for individual and family Marketplace plans and to employees whose company or employer offers such plans.

Facts About HSAs

  • If you pay for a qualified medical expense, withdrawals from your HSA are tax-free.
  • You can add money throughout the year to your HSA.
  • If you get an HSA through an employer, some employers may fund or help fund your HSA.
  • No "Use It or Lose It": Your HSA funds roll over annually, regardless of the amount.
  • You own your HSA and the money in it. You can take your HSA account with you, even if you change jobs, change health plans or retire.
  • When you turn 65, you can use your HSA for qualified medical expenses that Medicare doesn’t cover. Six months before you retire or get Medicare benefits, you must stop adding to your HSA.**
  • If you don’t use the money in your HSA for qualified medical expenses, you will pay a penalty unless you’re over 65. In addition, the IRS considers it income and it will be taxed. **

What is a CDHP?

A Consumer Directed Health Plan (CDHP) is a type of health plan that gives you more control of your health care expenses. Here are a couple of examples of CDHPs:

  • A HDHP paired with an HSA is one type of CDHP.  
  • A standard medical insurance plan with a Flexible Spending Account (FSA*) is another type of CDHP.

In both cases, you can use the pre-tax dollars in your health care account to pay for a wide range of qualified health care costs. 

Comparing an HSA to an FSA

  • To establish an account and make contributions, those wishing to use an HSA must be enrolled in a HDHP.
  • FSAs can be used with almost any traditional employer-sponsored health insurance plan.
  • Both FSAs and HSAs are used to pay for qualified medical expenses with tax-free dollars.
  • FSAs are "pre-funded" by the employer, meaning the employee has almost immediate access to the full amount of funds they contribute to during the year.

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* Health Savings Accounts (HSA) have tax and legal ramifications. Blue Cross and Blue Shield of Montana does not provide legal or tax advice, and nothing herein should be construed as legal or tax advice. These materials, and any tax-related statements in them, are not intended or written to be used, and cannot be used or relied on, for the purpose of avoiding tax penalties. Tax-related statements, if any, may have been written in connection with the promotion or marketing of the transaction(s) or matter(s) addressed by these materials. You should seek advice based on your particular circumstances from an independent tax advisor regarding the tax consequences of specific health insurance plans or products.

Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs), including products under our BlueEdge product portfolio have tax and legal ramifications. Blue Cross and Blue Shield of Montana does not provide legal or tax advice, and nothing herein should be construed as legal or tax advice. These materials, and any tax-related statements in them, are not intended or written to be used, and cannot be used or relied on, for the purpose of avoiding tax penalties. Tax-related statements, if any, may have been written in connection with the promotion or marketing of the transaction(s) or matter(s) addressed by these materials. You should seek advice based on your particular circumstances from an independent tax advisor, regarding the tax consequences of specific health insurance plans or products.

** For details on HSA plans, visit Understanding HSA-eligible plans from Healthcare.gov, an official website of the U.S. Centers for Medicare & Medicaid Services at https://www.healthcare.gov/high-deductible-health-plan/hdhp-hsa-work-together .