Consumer health basics (12)
- Palliative care: Symptom relief during illness
- Living wills and advance directives for medical decisions
- Clinical trials: A chance to try new therapies
- see all in Consumer health basics
Alternative medicine (13)
- Mindfulness exercises: How to get started
- Pet therapy: Man's best friend as healer
- Herbal supplements may not mix with heart medicines
- see all in Alternative medicine
Medications (4)
- Medication errors: Cut your risk with these tips
- Buying prescription drugs online: The do's and don'ts
- Personalized medicine and pharmacogenomics
- see all in Medications
Free
E-newsletter
Subscribe to Housecall
Our weekly general interest
e-newsletter keeps you up to date
on a wide variety of health topics.
Mayo Clinic Housecall
Stay up to date on the latest health information.
What you get
- Free weekly e-newsletter
- Mayo Clinic expertise
- Recipes, tools and other helpful information
- We do not share your e-mail address
Health savings accounts: Is an HSA right for you?
Health savings accounts (HSAs) are used to save money for future medical expenses. Discover how these plans work.
By Mayo Clinic staffHealth savings accounts are like personal savings accounts, but the money in them can only be used for health care expenses. You — not your employer or insurance company — own and control the money in your health savings account. The money you deposit is not taxed, and you can invest it in stocks, bonds and mutual funds. To be eligible to open a health savings account, you must have a special type of health insurance called a high-deductible plan. Sometimes referred to as "catastrophic coverage," high-deductible plans act like a safety net if you need extensive medical care.
Why were health savings accounts created?
Health savings accounts were established in 2003 as part of a larger trend known as consumer-directed or consumer-driven health care. Health savings accounts have been promoted by companies and the government as a way to help control health care costs. The theory is that consumers will spend their health care dollars more wisely if they're spending their own money. In addition, doctors and other health care providers will have an incentive to lower their rates because they're competing for consumers' business.
Is a health savings account right for me?
Like any health care option, health savings accounts have advantages and disadvantages. When considering a health savings account (HSA), think about your anticipated health care expenses, your financial situation and how much control you want over your health care spending. If you're generally healthy and want to save for future health care expenses, an HSA may be an attractive choice. On the other hand, if you anticipate needing expensive medical care in the next year and would find it hard to meet a high deductible, an HSA might not be your best option.
| Potential benefits of HSA | Potential risks of HSA |
|---|---|
| You control how your HSA money is spent. Any unused funds stay in your account and can be used for future medical expenses. | People who are older and sicker may not be able to save as much as younger, healthier people who need less medical care. |
| You decide how much money to set aside for health care costs. | Illness can be unpredictable, making it hard to accurately budget for health care expenses. |
| You can shop around for care based on quality and cost. | Some information, including cost and quality, can be difficult to find. |
| Your employer may contribute toward your HSA. | Pressure to save the money in your HSA might lead you to forgo care. |
| Money can be placed in your HSA on a pretax basis or may be deducted from your taxable income. | If you withdraw money from your HSA for nonmedical expenses, you'll have to pay taxes on it. If you're younger than age 65, you'll have to pay a 10 percent penalty, too. |
Sources: American Medical Association, 2010; Kaiser Family Foundation, 2010; New England Journal of Medicine, 2006; U.S. Department of the Treasury, 2010.
Who can set up a health savings account?
You can start an HSA on your own through a bank or other financial institution, or your employer may offer an HSA option. To qualify for an HSA, you must be under age 65 and carry a high-deductible health insurance plan. If you have a spouse who uses your insurance as secondary coverage, he or she also must be enrolled in a high-deductible plan. This high-deductible health insurance plan must be your only health insurance coverage — you can't be covered by other health insurance. However, having dental, vision, disability and long term care insurance doesn't disqualify you from having an HSA.
How does a high-deductible insurance plan work?
As its name implies, it's a health insurance plan that has a high deductible (the amount of medical expenses you must pay annually before coverage kicks in). The premiums (the regular fee you pay to obtain coverage) for a high-deductible insurance plan are typically lower than premiums for traditional insurance plans.
However, a high-deductible plan doesn't start paying until after you've spent a thousand dollars or more of your own money on health care expenses. (This unpaid portion of expenses is known as a deductible.) You can use your HSA to pay deductible expenses, copays, coinsurance payments and other noncovered health care expenses.
Not all high-deductible insurance plans work the same. For instance, some cover preventive services, such as mammograms, before the deductible is met. Review the plan's coverage details carefully, including the out-of-pocket maximum — the limit on how much you would have to pay out of pocket for medical expenses in a year.
How much money can I deposit annually into a health savings account?
The Internal Revenue Service decides how much you can contribute each year. A good source of the most up-to-date information on those amounts is the Department of the Treasury's website. In recent years, the contribution limits have been about $3,000 for individuals and about $6,000 for family coverage. The limits are indexed for inflation and adjusted each year. Unspent money in your HSA can be rolled over each year.
Next page(1 of 2)
- HSA FAQs. U.S. Department of the Treasury. http://www.treasury.gov/offices/public-affairs/hsa/faq.shtml. Accessed March 18, 2010.
- Consumer-directed health arrangements. Kaiser Family Foundation. http://www.kaiseredu.org/topics_im.asp?id=500&imID=1&parentID=61. Accessed March 18, 2010.
- Bloche MG. Consumer-directed health care. New England Journal of Medicine. 2006;355:1756.
- 2010 HSA indexed amounts. U.S. Department of the Treasury. http://www.treas.gov/offices/public-affairs/hsa/pdf/2010-HSA-%20indexed-amts.pdf. Accessed March 18, 2010.
- Health savings accounts. American Medical Association. http://www.ama-assn.org/ama1/pub/upload/mm/363/hsabrochure.pdf. Accessed March 18, 2010.
- Litchy WJ (expert opinion). Mayo Clinic, Rochester, Minn. April 10, 2010.
Find Mayo Clinic on