How a health savings account (HSA) works

A health savings account (HSA) is a savings account that helps you save and pay for healthcare expenses tax-free.

How an HSA works

An HSA offers a range of benefits and can be a valuable tool for managing healthcare expenses and saving for the future.

An HSA is only available with high deductible health plans. These plans usually have lower monthly premiums. You can contribute pre-tax dollars to your HSA, which can then be used to pay for eligible healthcare expenses.

Key features of an HSA:

  • Tax advantages: Contributions to an HSA are tax-deductible, and withdrawals for eligible medical expenses are tax-free. You can also earn tax-free interest on the money in your HSA.
  • Long-term savings: The money in an HSA rolls over year to year, allowing you to build substantial savings over time
  • Flexibility in spending: HSAs can be used to pay for a wide range of medical expenses, including prescriptions, doctor visits, and even some over-the-counter medications.
  • An HSA is an investment: You can invest a portion of your HSA balance in mutual funds, stocks and bonds.
  • Retirement savings: You can use your HSA to save for retirement. At age 65, you can use the funds for any purpose without a penalty. The money you take out to pay for eligible healthcare expenses continues to be tax free.

Maximize your HSA for retirement 

Fund your HSA early

Contribute the most allowed to your account at the beginning of each year. Even though you have until you file a tax return to make HSA deposits, starting right away each January gives you more time to take advantage of your HSA's tax-free growth. Over the years, you could get tens of thousands of additional dollars with this strategy alone.

Wait to withdraw from your HSA

Delay taking money from your HSA for as long as possible. Pay for your medical expenses out of pocket and leave your HSA money to grow tax free. Then pay yourself back from your HSA in the future for those eligible medical expenses. Be sure to save your receipts. Check with your HSA to see if you can scan your receipts into an electronic archive.

Use your HSA to invest

Use a portion of your HSA balance to buy mutual funds or other investments that offer growth potential.

Other medical spending accounts 

Health Reimbursement Arrangement (HRA)

An HRA is a health reimbursement arrangement available only through the workplace. Employers fund HRAs. If you have a higher-deductible plan through your work, you can use dollars in the HRA to cover your eligible healthcare costs. But you must use the money in your HRA by the end of every year. The balance doesn’t carry over to the next year.

Flexible Spending Account (FSA)

An FSA is a flexible spending account that lets you set aside money tax-free to pay for eligible expenses, like day care and healthcare products and services your health plan doesn’t cover (such as vision and dental care). An FSA is only available with healthcare plans you get through your employer.

If you have a health plan through your employer, check with your human resources department about opening an HSA.

This is general information about how plan benefits work. Review the Summary of Benefits and Coverage and your specific health plan benefit booklet for information about how your plan works.

It’s up to you to always check if your provider is in your health plan network before you receive services. Not all providers are in every network. You may pay more or for all of your healthcare costs if your provider is out of your network or does not have a contract with Blue Cross (this is called a non-participating provider). You can verify if your provider is in your network by calling customer service at the number on the back of your member ID card.