Define HSA
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Health Savings Account
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A heath savings account allows consumers to set aside money specifically to pay medical costs, much the same as a flexible spending account. But unlike an FSA, where the money not spent is forfeited at the end of the year, the money you put into a health savings account rolls over from year to year. That can allow you to accumulate a substantial amount in the HSA, basically building an emergency fund you can use to supplement your insurance in the event of a catastrophic illness or accident.
Eligible Health Plans
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Not every health plan is eligible for a health savings account, so before you think about opening one you need to make sure you are eligible. If the health insurance plan you have is considered a high-deductible health plan, or HDHP, you can open a health savings account to go with it. But if your health plan does not qualify as an HDHP, you cannot open a health savings account.
HSA Spending
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When you open a health savings account, you do so to help pay for eligible health care expenses. If you spend your HSA funds on non-medical costs, you could face a penalty from the IRS. You can use the money in your health savings account to pay for prescription medications, doctor visits and other eligible health care spending. It is important to note, however, that you cannot use your HSA funds to pay for over-the-counter medications unless you have a prescription for that medication from your doctor.
HSA Administrator
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You can open your health savings account through a number of different venues, including brokerage firms, mutual fund companies and banks. Each institution has its own terms and conditions governing the health savings accounts it offers, so it is important to shop around carefully. For instance, some banks, brokerage firms and mutual fund companies charge an administrative fee for their HSAs, while others do not. Choosing the lowest-cost provider can give you more money to put toward your health care expenses.
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