Health Savings Accounts (HSAs) are one of the most misunderstood — and most powerful — tools in health coverage. When used correctly, they can lower taxes, reduce out-of-pocket costs, and give you more control over how healthcare dollars are spent. This guide explains HSAs in plain English: what they are, how they work, what they can pay for, and when they make sense.
What is an HSA?
An HSA (Health Savings Account) is a tax-advantaged account used to pay for qualified medical expenses. HSAs are available only if you’re enrolled in an HSA-eligible high-deductible health plan (HDHP) that meets IRS rules.
The “triple tax advantage” (why HSAs are unique)
- Contributions may be tax-deductible (or made pre-tax via payroll).
- Money in the account can grow tax-free.
- Withdrawals used for qualified medical expenses are tax-free.
How HSAs work (in simple terms)
- You enroll in an HSA-eligible plan.
- You (and sometimes your employer) contribute money to your HSA.
- You use HSA funds to pay for qualified expenses — now or later.
Importantly, the HSA is yours. The balance rolls over year-to-year, and the account stays with you even if you change jobs.
What can you pay for with an HSA?
HSA funds can generally be used for many common healthcare costs, including:
- Doctor and specialist visits
- Prescription medications
- Deductibles, copays, and coinsurance
- Many dental and vision expenses
- Mental health and therapy services
- Some over-the-counter items (rules vary — always confirm)
Tip: Using HSA funds for non-qualified expenses can trigger taxes and penalties. When in doubt, verify the expense before you swipe the HSA card.
Why HSAs can lower your overall healthcare cost
HSAs don’t just help pay bills — they change how you plan. Many people use HSAs to create predictable healthcare spending and reduce tax exposure.
- Tax savings: Contributions can reduce taxable income.
- Flexibility: Spend now or save for future care.
- Control: You decide how and when to use funds.
- Long-term value: Balances can accumulate for later medical needs.
Common misconceptions (and what’s actually true)
“If I don’t use it, I lose it.”
Not true. HSAs roll over each year and remain yours.
“HSAs are only for high earners.”
Not true. HSAs can help anyone who wants a structured way to pay for healthcare with tax advantages. The key is whether the underlying plan fits your needs.
“HSAs are risky.”
The account itself isn’t risky. The question is whether the high-deductible plan is a good match for your care usage and budget.
When an HSA makes sense
An HSA-eligible plan may be a good fit if you:
- Want a lower premium and can handle higher out-of-pocket exposure
- Don’t expect frequent medical expenses (or can budget for them)
- Like the tax benefits and long-term flexibility
- Want a more consumer-driven approach to healthcare spending
When an HSA may not be the right choice
An HSA plan may be less ideal if you:
- Have high, predictable medical costs every year
- Prefer higher premiums in exchange for lower upfront expenses
- Can’t comfortably contribute to the account
- Need frequent care early in the year and want lower cost sharing
HSA vs. FSA vs. HRA (quick comparison)
| Feature | HSA | FSA | HRA |
|---|---|---|---|
| Who owns it? | You | Employer (admin) | Employer |
| Rolls over? | Yes | Usually no (limited rules) | Depends on employer |
| Portable? | Yes | No | Typically no |
| Who funds it? | You / Employer | You (pre-tax) | Employer |
| Best for | Long-term flexibility + tax benefits | Short-term planned spending | Employer reimbursement strategy |
Want help deciding if an HSA plan fits?
A Premier Shield Benefits specialist can compare HSA-eligible options and explain tradeoffs based on your situation. No obligation.
Talk to a Specialist →FAQs
Do I need an HSA-eligible plan to open an HSA?
Yes. HSAs require enrollment in an HSA-eligible HDHP that meets IRS rules.
Can I use HSA money for my spouse or dependents?
Often yes, if the expenses are qualified and you can claim the individual as a dependent (rules vary). Verify eligibility for your situation.
Is an HSA better than an FSA?
It depends. HSAs are portable and roll over; FSAs are good for planned short-term spending. Many people prefer HSAs for flexibility over time.
Can I invest the money in my HSA?
Many HSA providers allow investing once you hit a balance threshold. Investment options and fees vary by provider.
Related resources
Guide: Health Plan Funding Models
Compare fully insured, level-funded, and self-funded options for employers.
Read guide →Newsletter: Open Enrollment Timelines
A simple timeline and checklist to avoid missed enrollment deadlines.
View timeline →Guide: COBRA Alternatives (coming soon)
Bridge coverage options that can help avoid gaps without overpaying.
Preview →This guide is for educational purposes only and does not provide tax or legal advice. This site may contain affiliate links; we may earn a commission at no cost to you. Learn more.