Health Savings Accounts

A Health Savings Account (HSA) is a checking account with a Debit Card that can be used for qualified medical expenses. In more technical terms, they are tax-favored consumer savings arrangements for individual and families covered by high deductible health insurance plans (IRC Sec. 223). HSAs allow for tax-deductible contributions and tax-free distributions of principal and earnings if distributed amounts are used for qualified medical expenses. HSA participants need not be self-employed or employed by small employers to qualify.

Eligibility Requirements:

To be eligible for an HSA, all of these statements must be true:

  • Covered by an HSA-eligible high deductible health plan (HDHP)
  • Not covered by a non-HDHP that provides coverage for any benefit also covered under the HDHP
  • Not enrolled in Medicare
  • Not eligible to be claimed as a dependent on another person's tax return

(NOTE: Contributions to an HSA using online banking are considered current year.)


Employers: By offering HSAs through their cafeteria plans and/or providing employer HSA contributions, employers potentially have much to gain.

  • Tax deduction for contributions
  • Increased ability to attract and retain employees as a result of providing expanded employee benefits
  • Lower overall health insurance costs when an employer switches from a low to a high deductible health plan

Eligible Employees: Eligible individuals might benefit from participating in an HSA program in the following ways.

  • Ability to carry over contributions allows HSA account beneficiaries to use HSA assets in successive years for medical expenses or retirement
  • Payment of medical costs with pre-tax dollars from HSAs represents a substantial tax advantage
  • Potential for additional employee benefits as a result of the cost saving to employees