What is a Health Savings Account (HSA)?

Health Savings Accounts, AKA Health Savings Arrangements or (HSAs), are a type of bank account setup in conjunction with a High Deductible Health Plan (HDHP). These accounts are for eligible medical expenses for employees and their families that they need to pay out-of-pocket.

How HSA’s Work

When you choose an HSA to accompany your organization’s High Deductible Health Plan, both the employee and your organization can deposit money into the account using Pre-Tax funds. There is a limit on the amount of funds which both the organization and the employee can deposit into the account that is set by the IRS on an annual per-person or family limit. All funds deposited in the account are considered to be “Pre-Tax” and therefore, can also be used or grow income tax-free.

In order for plan members to access the funds, employees use either a prepaid benefits card associated with the account (like a debit card) or are reimbursed after they submit a manual claim. In the case of the card, plan members have access to the monies loaded into the HSA bank account and do not have to supply receipts to be reimbursed. The money in this account can only be used tax free for eligible health care related products and services not typically covered by insurance.

Why an HSA?

An HSA is a powerful tool when your organization provides employees with the opportunity to couple it with a High Deductible Health Plan. This is due to the fact that employees can pay lower premiums while they assume the risk and reward of their “claims experience.” If employees
maintain a certain balance in their HSA , (depending on the kind of plan your organization elects to setup), any money above that threshold may be eligible to transfer to a mutual fund.

At the point an employee turns 65 or becomes disabled, they can use the funds in the HSA account similar to how they can use funds from a regular IRA. This enables organizations to supply their employees with a benefit that lasts longer than just the benefit they can provide the employee while that employee works for the organization.

Employers should be aware, that HSA accounts are portable.  This means the employee owns the HSA account.  If the employee leaves the organization, the HSA remains the employee’s account and they can continue to use any funds in the account. Employers need to take this into consider as they make decisions on whether or not to offer employer contributions to their employee’s HSAs.  

What can Employees use HSA funds for?

• Routine Care: Doctor’s Office visits, X-Rays, Lab Work, etc.
• Hospitalizations and Surgeries
• Medication: Prescription and over-the-counter drugs your physician recommends
• Dental: Cleanings, Crowns, and Fillings
• Vision: Eye Exams, Glasses, and Contacts
• Copays and coinsurance (portion of health care bills you pay)
• Home health care items you can purchase at a pharmacy such as: First Aid supplies, Contact Lens Solution, Thermometers, Insulin testing kits, etc.

*Information on all items available can be found via the IRS website, or by contacting the organization’s Health Insurance Plan administrator.

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You can learn about another type of bank account you can setup for your employees -Flexible Spending Account- by checking out “What is a Flexible Spending Account (FSA)?”