What is an HSA?

A Health Savings Account, or HSA, is a financial account established by an individual or family to pay for qualified medical expenses.

U.S. federal regulations require citizens to have a minimum deductible of $1,100/year ($2,200 for families) on their health insurance from all sources (including HRAs) in order to make tax-deductible contributions to their Health Savings Accounts (HSAs).

HSAs combine the benefits of both traditional and Roth 401(k)s and IRAs for medical expenses. Taxpayers receive a 100% income tax deduction on annual contributions, they may withdraw HSA funds tax-free to reimburse themselves for qualified medical expenses, and they may defer taking such reimbursements indefinitely without penalties.

HSAs are unique—“IRAs on Steroids”—with triple tax advantages:

1. Tax-deductible contributions,
2. Tax-free accumulation of interest and dividends tax-free, and
3. Tax-free distributions for qualified medical expenses.

Every U.S. taxpayer should have an HSA to save money for retirement healthcare expenses.

Every U.S. taxpayer should maximize their HSA contributions before contributing to other retirement vehicles.

However, HSAs are not the optimal health benefit solution for employers, who:

1. Want employees to have proper economic incentives today to stay healthy and reduce their current medical spending,
2. Seek to reduce the ever-increasing cost of their group health benefits plan, or
3. Are looking for an affordable replacement to a group health benefits plan altogether for either current or formerly ineligible employees.

The best way employers can achieve all three of these objectives is by using Health Reimbursement Arrangements (HRAs).