What Is HSA
An HSA, or Health Savings Account, is a tax-advantaged savings account paired with a High Deductible Health Plan (HDHP). You contribute pre-tax money to it, use those funds to pay qualified medical expenses, and the account grows tax-free if unused. Unlike a Flexible Spending Account (FSA), HSA funds roll over year to year and belong to you permanently, even if you change jobs.
For 2024, individuals can contribute up to $4,150 annually to an HSA, while families can contribute $8,300. The account must be paired with an HDHP that has a minimum deductible of $1,600 for individual coverage or $3,200 for family coverage.
HSA and Government Assistance Programs
If you receive SNAP, Medicaid, TANF, or WIC benefits, HSA eligibility depends on your health coverage situation. You cannot have both Medicaid and an HSA simultaneously for the same coverage period. SNAP, TANF, and WIC do not affect HSA eligibility directly, but having Medicaid as your primary coverage disqualifies you from opening a new HSA until that Medicaid coverage ends.
If you lose Medicaid coverage due to income changes or other circumstances, you have a 60-day window to enroll in an HDHP and open an HSA. This matters during transitions between benefit programs.
How HSAs Work in Practice
- You open an HSA only when enrolled in an HDHP. You cannot use one with standard PPO or HMO plans.
- Contributions are deducted from your paycheck before taxes, reducing your taxable income. If self-employed, you deduct HSA contributions on your tax return.
- Qualified medical expenses include deductibles, copayments, coinsurance, prescription medications, dental work, vision care, and some medical equipment. Gym memberships and general wellness items do not qualify.
- After age 65, you can withdraw funds for any reason without penalty, though non-medical withdrawals are taxed as income.
Common Questions
- If I have Medicaid, can I open an HSA? No. Medicaid coverage makes you ineligible for HSA contributions. Once Medicaid ends, you have a 60-day grace period to enroll in an HDHP and establish an HSA.
- Does HSA money count as income for government benefits? HSA contributions themselves do not count as income, but interest earned and investment gains in the account may be considered assets depending on the specific benefit program you receive.
- What happens to my HSA if I stop working? The money stays in your account. You own it permanently and can use it for qualified medical expenses throughout your life, even if unemployed.