Who Can Use Health Savings Accounts and Flexible Spending Arrangements

Health savings account
What it is: A health savings account (HSA) also allows you to save untaxed income to pay for health-care costs, both in the short- and long-term. To be eligible, you must be enrolled in a high deductible health plan (HDHP), which the IRS defines as a plan with an annual deductible of at least $1,100 for individuals or $2,200 for families. To help offset the high deductible, you (or your employer) can deposit money into an HSA maintained by a financial institution, up to a maximum of $2,900 for an individual account and $5,800 for a family account. (Individuals 55 and older can deposit an additional $900.) You can use those funds to pay for medical expenses until you reach your annual deductible, and, after that, to pay for expenses that aren’t covered by your health plan. To use your HSA funds, you are issued a debit card that subtracts money directly from the account, although in some cases you may be required to submit receipts to the account trustee for reimbursement.

Almost anyone with an HDHP is eligible for an HSA, with some exceptions (such as people on Medicare). Importantly, unlike an FSA, any money that’s left over at the end of the year in your account can be carried over and used for future medical expenses. You can have both an HSA and certain types of FSAs, if your company offers both.

What it can be used for: In addition to routine medical expenses like doctor’s visits, prescriptions, and lab work, you may also use the money in your account to pay for medical expenses not covered by your insurance. You can also pay for long-term-care insurance premiums, and health-insurance premiums when unemployed or when receiving continuation coverage (such as COBRA). You cannot use an HSA for a Medicare supplemental policy such as Medigap.