What Is a Health Savings Account?

As healthcare costs continue to skyrocket, the need for cost-saving solutions and ways to help employees make smarter healthcare decisions, is more important than ever. For employers, offering a Health Savings Account (HSA), is one way to help their people consistently set aside money to pay for qualified medical expenses. While HSAs offer a few notable tax benefits, they also come with restrictions. More on this later ...

To help counter escalating costs, health insurance companies resorted to creating high-quality plan options at affordable prices - a process that changed the health insurance marketplace considerably. Although we’ve already witnessed the emergence of PPOs, HMOs, and other types of managed care options meant to steer consumers to certain providers at lower claims costs, there was a point in time where major savings for these plans flatlined. To keep health care affordable, companies have shifted out-of-pocket risks to consumers. In this post, we're talking contribution limits, why HSAs are useful tools, and how they work.

Health Savings Accounts: A History

In 2003, Health Savings Accounts (HSAs) debuted to support individuals on HDHP plans. The concept is quite simple. As a medical savings account, an HSA allows consumers to put money into the account on a pre-tax basis to use at a later date for medical claims that aren’t paid for by their health insurance plan. An HSA contribution is tax-free as long as it’s used for qualified medical expenses.

How It Works

The consumer owns the HSA and all the funds in it. Whether insured on an employer-sponsored HDHP or on an individual basis, the account belongs to the employee even after they’ve been terminated, resigned, retired, or switched jobs. 

For those who don’t expect to incur a lot of medical expenses, the HSA is a great investment for the future. That means that consumers could even use funds contributed in their 20s to pay for medical expenses after retirement. 

There’s no “use-it-or-lose-it” regarding an HSA. When someone retires, they can even use the funds for non-medical expenses without penalty. However, to keep making contributions to an existing HSA, they’ll need an HSA-eligible health plan. We recommend checking with the HSA provider to see if you’ll be charged any fees that your previous employer might’ve paid. 

If an employee switches jobs and wants to transfer their funds over to their new employer’s HSA to take advantage of pretax contributions, they’d just have to roll over the funds to the new HSA provider and close the “old” account. There are zero rules about holding multiple HSAs, but if a consumer chooses to keep the old account and open a new one, it’s important to note that the annual contribution limit applies to all of their HSAs combined.

Who Is Eligible for a Health Savings Account?

It’s important to note that not everyone enrolled in an HDHP is eligible to have a health savings account. Because there are tax benefits for HSAs, there are specific rules in place. To be eligible for a Health Savings Account people should be:  

• Enrolled in an HDHP plan without any other coverage, such as a secondary spouse’s plan. 

• Not enrolled in Medicare. 

• Not receiving VA or Indian health service benefits in the last three months.

• Not covered by their own or their spouse’s flexible spending account (FSA). 

Should You Max Out Your HSA Contribution?

If you can afford to contribute the maximum to your HSA each year, it can be a smart savings strategy. Unlike a 401(k), an HSA lets you save for future medical expenses without paying taxes or penalties when you withdraw the money. If your employer contributes to your HSA, contribute enough to reach the maximum match. 

If you’re an HSA account holder aged 55 or older, you’re eligible to employ an additional HSA contribution catch-up contribution limit of $1,000 beyond the standard annual maximum.

Coronavirus and HSAs

The COVID-19 pandemic has created additional questions around HSAs and care coverage, especially since HDHPs might typically require consumers to cover the costs of this care pre-deductible. Medicare, for example, will cover the cost of up to eight at-home COVID tests per month for beneficiaries with Part B coverage, starting in spring 2022. Furthermore, Medicare beneficiaries who get a lab test for coronavirus aren't required to pay the Part B deductible or any coinsurance for the test because clinical diagnostic laboratory tests are covered under traditional Medicare at no cost sharing. 

For those with an HDHP, testing and treatment of COVID-19 are considered eligible medical expenses, so people can use their HSA funds to pay for expenses incurred for these purposes, thanks to the CARES Act. Under that piece of legislation, HDHPs can also cover virtual urgent care even before someone has met their deductible without jeopardizing that plan’s qualified status.

What Are the HSA Contribution Limits for 2022?

The contribution limits for HSAs have changed significantly since 2003. Please consult with your tax professional before making a contribution. In 2022, individuals can contribute $3,650, and families can contribute $7,300 to a tax-free HSA in 2022.

>> Year-Round Access and Reminders

When you integrate your employees’ health accounts into HealthJoy’s platform, we can help turn understanding into action. 

• Prescriptions. HealthJoy can help you identify lower-cost prescription alternatives through a free RX Savings Review. We’ll also remind members to pay for medications using their HSA.

• Provider visits. When HealthJoy performs a provider search, our recommendation will include a reminder to use your financial health accounts for eligible expenses. A concierge can always answer questions about qualified expenses as you plan for any copayments or other fees.

• Virtual Urgent Care. When you use our virtual urgent care and behavioral health offering, we’ll encourage you to charge any fees to your HSA.

• Durable medical equipment. We can help determine if purchases like CPAP machines, wheelchairs, and portable oxygen concentrators are HSA-eligible. Our concierge can even recommend a local provider or provide an approved online vendor.

• JOY reminders. Near the end of the year, our AI assistant, JOY, will remind you to make use of any eligible financial accounts.

Our healthcare concierge team can help with questions about what’s covered, contribution limits, and more. Open the HealthJoy app and tap “Chat” to connect with JOY, our AI assistant, and our team of expert healthcare concierges. Schedule a demo today.

A Valuable Tool

HSAs can be a valuable financial tool for those looking to supplement their HDHP coverage, and make sure that they have the funds set aside to pay their future out-of-pocket expenses. It's important to understand the tax benefits and implications before enrolling in an HSA to ensure you're meeting all requirements.

For employers looking for ways to help employees save money to cover future expenses, an HSA can be the perfect option for retaining and recruiting employees.

This post was originally published in May 2020 and updated in 2022.