How to Save Money on Healthcare with an HSA

Money Girl explains who’s eligible to have a Health Savings Account (HSA), the rules for using one, and how they help you keep more money in your pocket - now, and in the future.

Laura Adams, MBA
7-minute read
Episode #391

How to Save Money on Healthcare With an HSAThe rising cost of healthcare is enough to give you a heart attack. But no matter if you get health insurance through work or on your own, there’s an often-overlooked way to save money on medical expenses called a Health Savings Account, or HSA.

In this episode, I’ll explain who’s eligible to have an HSA, the rules for using one, and how they help you keep more money in your pocket now, and in the future.

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What Is a Health Saving Account (HSA)

An HSA is a special tax-exempt account you can set up for the sole purpose of paying medical expenses. But to qualify for one, you must have a special type of health insurance, which I’ll cover in a moment.

You can contribute to an HSA if you get health insurance on the open market as an individual, or through a group plan with an employer.

No matter where you get your health insurance, you always own and manage an HSA as an individual. That means you don’t need permission from an employer or the IRS to set one up, and it stays with you even if you change jobs, or become unemployed.

Contributions to an HSA can come from you, someone else, or an employer. Some company benefits include regular deposits into an HSA, such as $150 a quarter. HSA contributions from an employer are similar to workplace matching funds for a retirement plan (like a 401k or 403b), because they’re not included in your taxable income.

When you put money into your HSA, those contributions are deductible on your tax return, even if you don’t itemize deductions. Money in most HSAs can earn interest, or be invested for potential growth. When you take distributions to pay for qualified medical expenses, your original contributions plus any earnings are completely tax-free.

That should make you smile, because it allows you to really maximize your buying power. You get a 20% to 30% discount on medical expenses paid for using HSA funds, depending on your income tax rate. Over your lifetime, that can add up to huge savings!

See also: Rules for Your Health Savings Account (HSA)


Unlike another type of medical savings account called a Flexible Spending Arrangement (FSA), there’s no deadline to spend money in an HSA. Funds can stay there indefinitely until you want to use them - even if you change your insurance company, become uninsured, or are unemployed.

So don’t confuse these 2 accounts:

  • An FSA is a health savings account that’s offered only by employers, must be funded through payroll deductions on a pre-tax basis, and comes with an annual use-it-or-lose it policy. 
  • An HSA is a health savings account that must be opened by an individual, permits tax-deductible contributions, and has no spending deadline.


About the Author

Laura Adams, MBA

Laura Adams received an MBA from the University of Florida. She's an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura's previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.