Surprisingly, Health Savings Accounts (HSA) are still one of the biggest financial secrets. Are you missing out on a tripled tax advantage opportunity? Do you know any other means of saving money where you can deposit money on a PRE-TAX basis*, your account grows TAX-FREE, and your money can be used to pay for qualified expenses** TAX-FREE? Having an HSA account may be the answer to those questions.

Here’s some background:

The IRS allows a subscriber of a Qualified High Deductible Health Plan (QHDHP) to contribute up to $3,600 as a covered individual or $7,200 as a family PRIOR to paying federal and state taxes in 2021. In 2022, this amount increases by $50 for an individual and $100 for a family. There is also an additional $1,000 catch-up amount for those 55 or older in 2021 and 2022. Maximum HSA contribution amounts are based on a calendar year.

A QHDHP is a medical plan that has a MINIMUM individual/family deductible of $1,400/$2,800 in 2021 and 2022. To be considered a QHDHP, the deductible must be incurred first before any additional benefits are paid by the insurance carrier EXCEPT for covered preventive medical and preventive prescriptions. Therefore, when you are covered on a QHDHP you must accept that you are financially responsible for all covered medical and prescription expenses until you have met your plan year individual/family deductible. A QHDHP generally costs less than a traditional first dollar medical plan. Participants might consider using the cost savings of enrolling in a QHDHP as the minimum amount they would contribute to an HSA per pay period. The amount saved in the HSA may be enough to cover most, if not all, of the deductible, should the subscriber have to pay it.

Be aware:

Although the initial qualification to set up an HSA is being covered on a QHDHP, there are some other factors that can disqualify someone from contributing to an HSA. They are:

  • Covered by another insurance plan
  • Entitled to Medicare benefits (Part A, B or D)
  • Claimed as a dependent on another person’s tax return
  • Participating in a medical Flexible Spending Account (FSA) or spouse’s medical FSA
  • Enrolled in VA benefits

*Business owners (non-C-Corp) that have a 2% or more ownership in a business cannot contribute to an HSA on a pre-tax basis but can deduct their post-tax HSA contributions on their personal income tax return.

Another item to keep in mind is that if you use your HSA to pay for non-qualified medical expenses prior to age 65, you will incur a 20% tax penalty and the amount spent will also be included in your taxable income. For some insureds, a QHDHP is not the best plan to choose if offered, but for many it is. If a QHDHP is offered, ask your trusted advisor if it is the right medical plan for you.

As the owner of an HSA, record keeping is important! It is your responsibility to be able to prove that HSA funds were used to pay for qualified medical expenses, should you be audited by the IRS. Do not let the description of qualified medical expenses trip you up. The list is long, and it does include dental and vision expenses (**Section 213 of the Internal Revenue Code).

Now the good stuff:

Should you choose to leave your employer, HSAs are owned by the employee and are portable. If you are no longer covered on a QHDHP or otherwise lose your eligibility to contribute to your HSA, you can spend the accumulated money as there is no time limit to spend down your account. Employees and employers can contribute to an employee’s HSA. When you are covered on a QHDHP, you are not required to set up a health savings account or even contribute to it; however, your HSA must be funded to use it to pay for current and/or future qualified medical expenses. If your employer chooses to contribute to your HSA, once funds have been deposited into your HSA, it is YOUR money.

HSAs are set up with various financial institutions (i.e. banks). Most banks that offer HSAs charge an administration fee in addition to fees for various other services. Many financial institutions that offer HSAs also offer the account holders the opportunity to set up an investment account once a minimum account balance is attained (e.g. $1,000-$2,500). Banks that offer an investment option have arrangements with various investment firms, and the investment firms also charge fees to invest in their products. Do your research and be an informed investor. These investment vehicles POTENTIALLY allow an HSA holder the opportunity to earn more than the nominal interest rate currently offered in a basic interest-bearing HSA.


If you can pay for your qualified medical expenses out-of-pocket (e.g. cash, check, or credit card) you will allow your HSA to grow faster, even if you are just earning a nominal interest rate. By not spending down your HSA, it will allow you to reach the minimum required amount faster to open additional investment options and ultimately take advantage of a more diverse investment strategy (e.g. mutual funds, stocks, ETFs, etc.). Remember, there is no time limit of when you must spend the funds accumulated in your HSA. You can use your HSA to pay for current qualified medical expenses and/or for past qualified medical expenses incurred after you have set up and activated your HSA with an initial deposit.

Thus, your HSA is truly a 401k for your healthcare!