An HSA-eligible Health Insurance Plan is a plan that includes a personal savings account for health expenses.

An HSA can be an interest-bearing health account used for qualifying medical expenses, with the IRS’s maximum contribution limits set annually. The account holder can contribute to an HSA when enrolled in a qualifying high-deductible health plan (HDHP), traditionally known for lower premiums and high-deductibles. A qualifying HDHP has a minimum deductible and out-of-pocket maximum that is set annually by the IRS.

HSAs are owned by YOU (not the insurance company) and administered similar to an IRA. Contributions are 100% tax-deductible (until the maximum contribution limit is reached), and HSAs are triple tax-advantaged (tax-deductible contributions, tax-free interest, and tax-free withdrawals for qualifying medical expenses).

How does an HSA work?

Funds are deposited into the HSA account at your bank or financial institution, which can later be withdrawn for qualified medical expenses.

An HSA is an individually-owned triple-tax-advantage account that works with a qualifying high-deductible health plan. When reviewing plans available on the marketplace look for HSA in the plan name. These plans will often be the least expensive plans on the list. Click here to see plans.

You can open the HSA account on your own and you can make tax-deductible contributions, earn tax-free interest, and make tax-free withdrawals for qualified medical expenses. The funds can be withdrawn to help pay for qualifying medical expenses, including those not covered by health insurance – like dental and vision care.

What are the benefits of an HSA?

There are five primary benefits of an HSA.

  1. Tax-free money for qualified medical costs. Because HSA contributions are tax-deductible, and they earn tax-free interest, with tax-free withdrawals, tax-free money from the HSA can be used to pay for health expenses. This means that the account holder saves about 35% off the retail cost of their medical services.
  2. Flexibility. The account holder owns the HSA. If they change employers, they can roll the account over to a new bank or provider, similar to a 401(k) or IRA.
  3. Long-term savings. With an interest-bearing HSA, and investment opportunities, account holders that plan for the long-term can mitigate the cost of health care expenses during retirement.
  4. A health safety net. An HSA helps individuals save for the unknown. HSA funds can be used for unexpected health expenses and healthcare costs like health insurance if the account holder is between jobs. It also covers Medicare-related expenses, or any other qualified medical expense, even after you change health insurance or providers.
  5. Versatility in retirement. Once the account holder turns 65 years old, HSA funds can be used for non-health-related expenses without any penalties, similar to a 401(k) or IRA.

Are there limitations to what I can spend using my HSA funds?

Yes. For tax-free distribution, funds must be spent on eligible medical expenses.

For funds to be tax-free upon a distribution, they must be used for eligible medical expenses (as defined by the IRS). IRS Publication 502 has the full list. If HSA funds are used for something other than a qualified medical expense, they can be subject to significant IRS penalties.

What expenses are covered?

Since Health Savings Accounts (HSAs) are tax-advantaged, the IRS defines the types of expenses that you can pay for with these accounts. Generally, qualified expenses include doctor visits, medications, medical equipment, and dental and vision care for you, your spouse and any dependents.

Examples of qualified medical expenses;

Medical

  • Accupuncture
  • Acid controllers
  • Alcholism treatment
  • Allergy and sinus medicine
  • Ambulance
  • Anti-diarrheals
  • Anti-gas products
  • Anti-itch and insect bite
  • Anti-parasitic treatments
  • Baby rash ointments/creams
  • Birth control
  • Body scans
  • Braille books and magazines
  • Breast pumps and lactation supplies
  • Chiropractor
  • Co-insurance (medical, dental or vision)
  • Co-payments
  • Cold sore remedies
  • Cough, cold and flu
  • Crutches or canes
  • Deductibles
  • Diabetic supplies
  • Diagnostic services
  • Digestive aids
  • Drug addiction treatment
  • Feminine anti-fungal/anti-itch
  • Fertility enhancements
  • Flu shots
  • Guide dogs or other service animals
  • Hearing aids and batteries
  • Hemorrhoidal preps
  • Hospital services
  • Insulin
  • Laboratory fees
  • Lamaze classes
  • Laxatives
  • Learning disability treatments
  • Menstrual care products
  • Mastectomy-related special bras
  • Medical equipment and repairs
  • Medical monitoring and testing devices
  • Medical supplies
  • Motion sickness
  • Nursing services
  • OB/GYN
  • Office visits
  • Oxygen
  • Pain relievers (for example, aspirin)
  • Physical exams
  • Physical therapy
  • Pregnancy tests (over-the-counter)
  • Prescription drugs
  • Prosthesis
  • Psychiatric care
  • Reconstructive surgery following
  • Respiratory treatments
  • mastectomy
  • Sleep aids and sedatives
  • Smoking cessation (programs/drugs)
  • Speech therapy
  • Sterilization
  • Stomach remedies
  • Surgery
  • Transportation, parking and related
  • travel expenses
  • Vaccinations
  • Vasectomy
  • Weight loss program and/or drugs
  • Wheelchair
  • X-ray fees

Dental

  • Braces
  • Dentures
  • Exams
  • Extractions
  • Fillings
  • Teeth cleaning
  • X-rays

Vision

  • Contact lenses
  • Examinations and glasses
  • Laser eye surgery
  • Reading glasses (over-the-counter)

Common Over-the-Counter (OTC) Medicines

  • Acid controllers
  • Acne medicine
  • Aids for indigestion
  • Allergy and sinus medicine
  • Anti-diarrheal medicine
  • Baby rash ointment
  • Cold and flu medicine
  • Eye drops*
  • Feminine antifungal or anti-itch products
  • Hemorrhoid treatment
  • Laxatives or stool softeners
  • Lice treatments
  • Motion sickness medicines
  • Nasal sprays or drops
  • Ointments for cuts, burns or rashes
  • Pain relievers, such as aspirin or ibuprofen
  • Sleep aids
  • Stomach remedies

Services That May Be Eligible with a Letter of Medical Necessity Completed

This list is not all-inclusive:

  • Weight-loss program only if it is a treatment for a specific disease diagnosed by a physician (e.g., obesity, hypertension, heart disease)
  • Compression hosiery/socks, anti-embolism socks or hose
  • Massage treatment for specific ailment or diagnosis
  • CPR classes for adult or child
  • Improvements or special equipment added to a home or other capital expenditures for a physically handicapped person

Ineligible Expenses

Listed below are some services and expenses that are not eligible for reimbursement. This list is not all-inclusive:

  • Aromatherapy
  • Baby bottles and cups
  • Baby oil
  • Baby wipes
  • Breast enhancement
  • Cosmetics and skin care
  • Cotton swabs
  • Dental floss
  • Deodorants
  • Hair re-growth supplies and/or services
  • Health club membership dues
  • Humidifier
  • Lotion
  • Low-calorie foods
  • Mouthwash
  • Petroleum jelly
  • Shampoo and conditioner
  • Spa salts