HSA Definition | OnlineHealthIns.com Glossary

HSA (Health Savings Account)

Also known as: Health Savings Account

A tax-advantaged savings account, available with certain high-deductible health plans, used to pay for qualified medical expenses.

An HSA (Health Savings Account) is a personal savings account that lets you set aside pre-tax money to pay for qualified medical expenses like deductibles, copays, coinsurance, and many other healthcare costs. To contribute to an HSA, you must be enrolled in a qualifying high-deductible health plan (HDHP).

Contributions are tax-deductible, or pre-tax if made through payroll.
Unused funds roll over year to year; there's no "use it or lose it" deadline like some other accounts.
The account is owned by you, not your employer, and stays with you even if you change jobs or health plans.

HSAs are often described as triple tax-advantaged: contributions reduce taxable income, growth in the account isn't taxed, and withdrawals for qualified medical expenses aren't taxed either. Because balances roll over indefinitely, some people use an HSA as a long-term savings vehicle for future healthcare costs, including in retirement.

A common point of confusion is mixing up an HSA with an FSA (Flexible Spending Account). Unlike most FSAs, HSA funds don't expire at year-end, and you must be enrolled in an HDHP to contribute to an HSA in the first place.

Example

An employee enrolled in a high-deductible plan contributes to her HSA through payroll deductions, then uses the funds tax-free to pay her deductible when she needs an outpatient procedure.

Good to Know

Unlike most Flexible Spending Accounts, HSA balances roll over every year and are never forfeited, making them useful for long-term healthcare savings.

Related Terms

Deductible — The amount you must pay out of pocket for covered care each year before your health plan starts sharing costs through copays or coinsurance.

Premium — The amount you pay, usually monthly, just to keep your health insurance coverage active, regardless of whether you use any care.

Coinsurance — The percentage of a covered service's cost you pay after meeting your deductible, with your insurance plan paying the rest.