Health Savings Account Detailed

How Does HSA Work? – Health Savings Account Detailed

A health savings account is a personal savings account that offers both an investment and health coverage for its users. This account type works in combination with an HSA-qualified health deductible health insurance policy.


The health savings account allows users to pay lower federal income taxes by making deposits that are tax-free every year. A person can enroll in an HSA-qualified high-deductible health plan during open enrollment.

In the course of this article, we will be sharing everything you need to know about how HSA works.

How The HSA (health savings account) Works

A health savings account helps a user to pay for medical expenses with pre-tax money. It can also be used by a user to build retirement savings that can be used at any time without any penalties or taxes. Imagine being able to enjoy health insurance coverage that comes with lower premiums and a higher deductible.

If a citizen of the United States of America uses a health savings account wisely they can use this innovative approach to their advantage while enjoying personal and financial benefits.

With the aid of an HSA account, you can be able to pay for your medical expenses that are not paid by your HDHP. Your HDHP can be regarded as your safety net in case you need coverage for major medical expenses that exceed the amount of your deductible.

Your HSA account allows you to pay a lower premium for your insurance coverage. The reason for this is that it is a high-deductible plan that does not cover anything other than preventive care before the deductible.

The Conditions For Opening A HSA Account

For an American to be able to open an HSA account there are some conditions that need to be met. We will be dedicating the next paragraphs to elaborate on these conditions:

  • First off, the American will need to be covered under a qualifying high-deductible health plan that meets the minimum deductible and the maximum out-of-pocket threshold for the year
  • Another condition that needs to be made is that you are not covered under another medical plan.
  • Also, a person that wants to open an HSA account should not be enrolled in Medicare, TRICARE, and TRICARE for life.
  • Another interesting condition is that you should not be claimed as a dependent on someone else’s tax return
  • You should also not be covered by medical benefits that can be accrued from the veteran’s administration.

How To Set Up A Health Savings Account

To be able to enroll in a health savings account, you need to first set up an HDHP. The easiest way to enroll for HDHP is through your employer’s human resources department.


It is important to note that credit unions, brokerages, and banks offer HSAs. Most HSA providers should have their own terms of use. If an HSA is being offered by a brokerage they might set terms that allow you to potentially invest your contributions in stocks, funds, or bonds. If your HSA is coming from a bank, they might offer an optimal interest rate.

It is important to note that after selecting a provider for your HSA, the registration process is fairly simple: all you need to do is to complete an application with information on your HDHP. The moment they approve your account you can fund it and start using it for qualified expenses.

1. The Benefits Of Health Savings Account

Here are some of the major benefits of having a health savings account.

2. A lot of Expenses Qualify

When you have a health savings account, there are so many expenses that you are eligible for. Some of which include; medical, dental, and mental health services.

3. Your Contributions Are Made With Pre-tax Dollars

The contributions that are made with the health savings account are made with pre-tax dollars through the payroll deductions at your employer. This is the major reason why they are not included in your gross income and are not subject to the income taxes of the United States of America.

4. Your HSA Withdrawals Are Tax-Free

It is important to note that one of the major benefits of having an HSA account is that you can make Withdrawals from it without being charged any taxation. You can use your HSA account to purchase stocks, and other securities, so that you can potentially boost your returns.

5. Your Money Can Be Rolled Over To The Next Year If It Was Not Used

If there is any money that was left in your HSA account, it will be rolled over to the next year.

6. An HSA Account Is Very Portable

The money you keep in your HSA account can be available for future medical expenses. This also applies even if you change your health plans, or go to work for a different employer.


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