What Is a Health Savings Account & How it Works

What Is a Health Savings Account & How it Works
A health savings account (HSA) is a way to set aside pre-tax money for medical expenses if you have a high deductible health plan. There are several health savings account rules that determine who is eligible, contribution limits, money rollover, and how to remove funds from the account.
If you are looking for ways to save money on health care expenses, Mira may be a great option for you and your family. Mira is an alternative to health insurance that can be used in addition to a high deductible health plan to help you get access to affordable lab tests, urgent care visits, and up to an 80% savings on prescriptions.
Health Savings Account Definition
A health savings account (HSA) is a way to allocate pre-tax money to pay for your health expenses. By setting up an HSA, you will have money in an account that is used only to pay for your health care costs, such as copayments, coinsurance, or other costs associated with seeking care. Unlike a flexible spending account (FSA), the money rolls over every year so that you can use it when you need it the most.
Most HSAs will issue you a debit card to use to pay for medical expenses. HSAs are only available for people who are covered by high deductible or catastrophic health plans and can help you save money on health care costs.
Health Savings Account Rules
While HSAs are a great way to set aside money to pay for health expenses, they are not available to everyone and you must follow certain rules when setting up or maintaining this type of account. Below we outline the rules regarding qualifying for and managing a health savings account.
- Be Paying for an HDHP: In order to qualify for a health savings account, you must have a high deductible health plan (HDHP). In 2021, the annual deductible for an individual HDHP must be between $1,400 and $7,000. The annual deductible for a family HDHP must be between $2,800 and $14,000.
- Other Eligibility Requirements: In addition, you cannot be on Medicare or filed as a dependent on someone’s 2020 tax returns to have an HSA. You also cannot be covered by another health insurance plan, with exceptions for dental care, vision, long term care and other plans.
- Contribution Limit: The contribution limit for an HSA depends on whether you are an individual or family. For an individual, the annual contribution limit for an HSA is $3,600 while the annual contribution limit for a family is $7,200. In addition, the contribution limits for individuals 55 or older is increased by $1,000.
- Funds Can Rollover: If you do not use all of the funds in your HSA in a given year, you will not lose the money. You can rollover the extra money to an account to use the following year. You can rollover funds by contacting your HSA provider, who can help transfer your excess funds to a new account.
- Removing Funds From Your Account: You can remove funds from an HSA to pay for eligible medical expenses at any time. In addition, you can take out tax-free money from the account for any purpose after the age of 65. Before age 65, there is a 20% penalty for funds used for nonmedical purposes.
Health Savings Account Advantages and Disadvantages
There are many advantages and disadvantages of a health savings account that you should consider determining whether an HSA is the right fit for you. It’s important to analyze each for your personal situation before committing to an HSA or an HDHP.

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Advantages of a Health Savings Account
Here are some of the advantages of having a health savings account:
- Rollover Unused Funds. Money put in an HSA rolls over each year, so if you do not spend all of the money in your HSA in a given year, you will not lose any of the money. You can use leftover money on eligible health expenses the following year.
- Save Money. Since you can put pre-tax or tax-deductible money into your HSA, you can save money to spend on health expenses. After the age of 65, you can use this tax-free money for any purpose.
- Use for All Medical Expenses. The money put in an HSA can be used to cover a wide range of medical expenses, including prescription medications, dental procedures, eye care, and individual counseling.
- Employer Contributions. Your employer can help contribute to your health savings account, but you will not lose money if you switch jobs. Some other accounts, such as a flexible spending account, are tied to your current job.
Disadvantages of a Health Savings Account
When considering if you should get an HSA, it is also important to note the disadvantages as well. Here are some of the disadvantages of a health savings account:
- Penalties for Withdrawing Early. If you take out money from an HSA for non-medical purposes before the age of 65, you will need to pay the income taxes on the money and a 20% penalty. Therefore, you will lose money if you need to take it out for not approved expenses.
- Must Keep Records. It is necessary to keep records of withdrawals or transactions in order to prove that they were used for qualified medical expenses.
- Monthly Transaction Fees. You may need to pay a monthly fee or a fee for each transaction depending on your health savings account rules.
- Must Have an HDHP. You must have a high deductible health plan to qualify for an HSA, which still requires that you pay the full cost of medical expenses until you meet the deductible of your plan. Even with an HSA, it can be difficult to save up enough money to pay for costly medical procedures before you meet your deductible. If you have a high deductible plan, a Mira membership can help you save money by giving you access to affordable urgent care, prescriptions, and lab tests.
Health Savings Account Frequently Asked Questions (FAQs)
Is a health savings account right for me?
If you are young, generally in good health, and do not frequently seek medical care, an HSA may be a great option to help set aside tax-free money for expenses when you need medical attention. However, if you are managing a chronic condition or are frequently sick, a high deductible health plan and HSA may not be the best option for you.
If you have a high deductible plan, you need to pay the full price of medical expenses until you meet your deductible, which can be up to $7,000. Even if you have some money set aside in an HSA, it may not be enough to cover all of your medical expenses if you are frequently going to the doctor.
If you are looking for a way to save money on health care expenses, Mira may be a great option for you. For $45/month, Mira members get access to affordable urgent care, lab tests, and prescriptions. You can use a Mira with a high deductible health plan to lower the cost of your medical expenses before you meet your deductible.

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How do health savings account contribution limits work for spouses?
As a married couple, you and your spouse can each have your own health savings account, but you and your spouse have a combined maximum contribution of $7,200. The money in each account can either be split evenly, split unevenly, or 100% of the funds can be put in one spouse’s account.
You and your spouse may want to consider having two separate accounts if you are over 55, as your maximum contribution in each account will be raised by $1,000. You also may want to consider separate accounts if one of your employers contributes to your HSA.
Is an HSA different from an FSA?
Health savings accounts (HSA) and flexible spending accounts (FSA) are both ways to set aside tax-advantaged money to use on health-related expenses. However, there are some key differences between a HSA and FSA, namely who is eligible, who controls the account, and money rollover.
While individuals with an HDHP qualify for an HSA, individuals who qualify for an FSA must have a group health insurance plan from an employer that offers this type of account. Since an FSA is tied to your employment, if you change jobs, your FSA cannot be carried over. On the other hand, an HSA can be maintained even when you switch jobs.
In addition, if you do not use all of the funds from your HSA in one year, they will roll over and can be used the following year. However, you lose whatever funds you do not spend from your FSA once the year is over. You can only rollover a maximum of $550 from your FSA to the following year.
Bottom Line
If you have a high deductible health plan, a health savings account can help you allocate money for your health care expenses. It is important to be aware of the advantages and disadvantages of HSAs in addition to the rules regarding money rollover, contribution limits, eligibility, and removing funds from your account. An HDHP and HSA tend to be a good option for individuals who are generally in good health but may not be sufficient if you are managing a chronic health condition.
Mira is another option that can help you save money on urgent care visits, prescriptions, and lab tests. With a Mira membership, you can access affordable medical services and avoid paying the full price for your care for as little as $45 per month. Sign up today to get covered!

Jacqueline graduated from the University of Virginia in 2021 with a B.A. in Global Public Health and is a current M.D. candidate at the Icahn School of Medicine at Mount Sinai. Jacqueline has been working for Mira since April 2020 and is passionate about the intersection of public health and medical care.