Saving on Health Care: Health Savings Accounts

It’s no secret that health care costs are climbing. And with longer average life expectancies, an aging baby boomer population, and the continued effects of the COVID-19 pandemic across our health care system, it is more important than ever to take advantage of programs that can help you pay for the care you need. One of the most popular ways for saving on health care is using a health savings account, or HSA.

Like many financial programs, the rules associated with them can feel a little overwhelming. But there is nothing to fear—and much to gain—from figuring out the ins and outs of HSAs. Here’s what you should know about how your HSA works.

How an HSA Works

So how does your HSA work, exactly? Think of it like a bank account that can only be used for certain health care–related expenses. Your contributions are tax free, such as you might see with some retirement savings plans—and they earn tax-free interest over time. These funds can be used for eligible services and purchases, saving you on out-of-pocket spending from your regular bank account or credit card.

HSAs are also similar to FSAs (flexible spending accounts), which can also be used to pay for health care–related expenses. FSAs, however, are owned by your employer rather than by you—and they have a use-it-or-lose it requirement. That means your funds must be used the same year you contribute them, and that you can’t take any remaining funds with you if you change jobs. HSAs, like savings accounts or retirement plans, are yours to take with you.

And like retirement savings plans, the IRS (Internal Revenue Service) imposes limits on how much you can contribute each year. In 2022, that is a maximum annual contribution of $3,650 for individuals (or $7,300 for families) on a high-deductible health insurance plan (that is, a health plan with an annual deductible of $1,400 or more for individuals—or $2,800 for families).

Once you have funds available in your HSA, it can be as simple as swiping your HSA debit card, which allows you to pay directly from your account. If you don’t have a debit card for your HSA (or choose not to use one), you can also use your personal payment method of choice—and save the receipts for reimbursement from the HSA later.

Where You Can Use Your HSA

You can use it to pay for qualified services (or copays for services) in your doctor’s office, dentist’s office, or optometrist’s office. You can use it at local pharmacies, big box stores, or even online retailers to pay for prescriptions, nonprescription over-the-counter medications, and certain medical equipment.

Paying for health care visits or prescription drugs may not come as any big surprise, but there are also some great ways to use your HSA that you might not have thought of. Menstrual care products, for instance, are HSA-eligible, as are medicated sunburn treatments, adult diapers, nutritional counseling, and psychological and psychiatric care services.

With any of these eligible products and services, the sales tax associated with them can also be paid with your HSA funds (whether that is via direct payment at the time of service or sale, or through reimbursement).

Where You Can’t Use an HSA

There are, however, some restrictions. For instance, you can’t use your HSA for dues and fees, including late or missed appointment fees, contract fees, finance charges, or union dues. Expenses related to childcare, fitness clubs, and nutritional supplements are also disallowed by the IRS’s guidelines.

Personal care items and toiletries—such as toothbrushes and toothpaste, nail care products, shampoos and soaps, and razors and shaving cream—are not eligible uses for your HSA. Maternity clothes and infant formula are also not covered.

But there are some categories that can be a gray area. Weight-loss programs, cosmetic surgeries, and massages are also often ineligible—though if these have been prescribed by a doctor, your HSA may be able to help pay for them.

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By D. Sponer