Understanding a Health Savings Account (HSA)

What is a Health Savings Account (HSA)?

A health savings account, also known as an HSA, is a tax-exempt savings account that, when paired with a qualified high-deductible health plan (QHDHP), can be used to pay for certain medical expenses. Funds deposited are not taxed, nor are withdrawals for qualified expenses.

To use an HSA with your health insurance plan, you need to enroll in a QHDHP, also known as an HSA-compatible health plan. It’s important to know that not all high-deductible health plans are qualified. The Internal Revenue Service (IRS) defines what makes a plan qualified. These requirements can change, so be sure to check that your high-deductible plan is a qualified high-deductible plan.

What are the Benefits of Having an HSA?

HSAs have many benefits, like:

Money goes in tax-free. Your HSA contributions are made on a pre-tax basis, making savings immediate. Your HSA contributions are also tax deductible.
Money comes out tax-free. Eligible healthcare purchases can be made tax-free when the HSA is used. Purchases can be made directly from the HSA account, either by using a healthcare debit card (if included with your HSA), ACH, online bill-pay or check; or, you can pay out of pocket and reimburse yourself from your HSA.
Earn interest, tax-free. The interest on HSA funds grows on a tax-free basis. Unlike most savings accounts, interest earned on an HSA is not considered taxable income when funds are used for eligible medical expenses.
Your HSA balance can be carried over year after year. Unlike a flexible spending account (FSA), an HSA is not a use-it-or-lose-it account. Your balance can continue to grow year after year.
An HSA balance can be invested. Depending on your HSA, you may be eligible to invest your HSA similar to a 401K or IRA - in an interest-bearing account, a mutual fund, stocks or bonds.
You can use your HSA to help add to your retirement funds.—After you turn 65, you can withdraw funds from your HSA for any reason without penalty.

What Can I Pay for Using an HSA?

HSAs may be used to pay for various medical expenses. Here’s a partial list of qualified medical expenses from the IRS (based on IRS Section 213 and listed in Publication 502):

Health insurance plan deductibles, copayments and coinsurance
Prescription drugs
Dental services including braces, bridges and crowns
Vision care including glasses and Lasik eye surgery
Psychiatric and certain psychological treatments
Long-term care services
Medically related transportation and lodging
Certain health premiums, including COBRA

Health Savings Accounts (HSAs) from Medical Mutual

If you enroll in a Medical Mutual HSA-compatible, high-deductible health plan, you have the option to set up a Medical Mutual HSA. The Medical Mutual HSA provides a more efficient and affordable way to manage your healthcare benefits and your HSA. The Medical Mutual HSA has no monthly administrative fee and is managed by an Ohio-based team.

Through My Health Plan, Medical Mutual's secure member website, you can manage your HSA and your health plan in one convenient location using your computer, tablet or smartphone.

When you log in, you can:

Transfer money electronically to fund your HSA
Upload and record necessary medical receipts
View your account balances
Monitor your claims
Track expenses against your deductible

If you don’t want to open a Medical Mutual HSA, you can open an account with another financial institution, but fees may apply.

Is an HSA Right for Me?

An HSA may be right for you if are willing to set up the account and have money to fund it. Conventional wisdom is to contribute as much as you can, up to the IRS contribution limit.

If you have health insurance through your employer, the company may contribute money to your HSA. Check with your employer’s Human Resources or Benefits department.

Since HSAs and qualified high-deductible health plans go hand-in-hand, you must also determine if a high-deductible health plan fits your needs.