You can use these accounts for qualified medical expenses, such as deductibles, co-pays, prescriptions and more. Health spending accounts come in three forms:

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• Health savings account (HSA), this is the only account qualified to be used with an IFP high-deductible health plan (HDHP) or an employer sponsored HDHP

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• Health reimbursement arrangement (HRA), only available with an employer sponsored plan

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• Flexible spending account (FSA), only available with an employer sponsored plan

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An HSA is an account you use to pay for qualified medical, pharmacy, dental and visions expenses and save on taxes. The key things to know about HSAs are:

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• You must be under 65 to have one

  • You can't open an HSA if you are covered by Medicare​

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• You must be covered by a HDHP to open an HSA

  • You know you have that type of plan if the deductible is at least $1,650 for one person or $3,000 for plans that cover more two or more people.

    • Please note: There are some family plans that have deductibles for both the family as a whole and for individual family members. Under these plans, if you meet the individual deductible for one family member, you don’t have to meet the higher annual deductible amount for the family. If either the deductible for the family as a whole or the deductible for an individual family member is less than the minimum annual deductible for family coverage, the plan doesn’t qualify as an HDHP.​

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• You own your HSA and the money in it

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• This is not a "use it or lost it account"

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• You can contribute to your HSA any time of year, up to the annual limit.

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• Anyone can deposit money into your HSA, up to an annual limit  set each year by the IRS

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• You cannot open an HSA if you're covered by Medi-Cal/Medicaid or claimed as a dependent on some else's tax return

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There are several different ways you can contribute to your HSA:

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• Have a set amount taken our of your paycheck per paycheck before taxes (California does not recognize HSA's, however you will receive the deduction on the Federal side).​

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• Deposit money that's already been taxed - you can deduct it from your income on your tax return no matter who it came from.

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• Your employer can put money into your HSA and save on taxes, too

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• Invest the funds in your HSA to earn interest; a minimum account balance may be required.

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• You can also move money from an IRA to your HSA once - this is called a one-time rollover

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Important Details:

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• Catch-up contributions can be made anytime during the year by HSA-eligible participants who will be age 55 or older by the end of the year. Unlike other limits, the $1,000 catch-up amount does not vary from year to year.

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• An HSA is in an individual account holder's name, even when used by a spouse or dependents with family coverage to pay medical expenses. When both spouses have self-only coverage, each spouse may contribute up to the annual HSA self-only limit in their own HSA.

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• While a married couple under a family HDHP share one family HSA contribution limit, they can contribute up to that shared limit in separate accounts and, if both are age 55 or older, each make a separate $1,000 catch-up contribution to an account in their own name.

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• While the Affordable Care Act (ACA) allows parents to add their adult children who have not reached age 26 to their health plans, the tax laws regarding HSAs have not changed and children ages 19 until age 26 must be considered a tax dependent in order for an adult child’s medical expenses to qualify for payment from a parent’s HSA.

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• Contributions for a given year may be made until the individual's federal tax return due date for that year (generally April 15), without extensions. ​

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• Under the last-month rule, those covered by an HSA-eligible health plan on Dec. 1 are eligible individuals for the entire year and may contribute the entire year's contribution to their HSA instead of making pro rated contributions by month. Partial-year HDHP enrollees who take advantage of the last-month rule must remain eligible individuals covered by an HDHP through Dec. 1 of the following year or risk tax assessments and penalties on their prior-year HSA contributions.

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• The self-only annual limit on HDHP out-of-pocket expenses applies to each covered individual, regardless of whether the individual is enrolled in self-only coverage or family coverage.

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Most importantly, you can treat your HSA like an IRA for healthcare. You can save the money in it and use it for qualified expenses at any time. According to recent estimates by Fidelity Investments, a married couple retiring at age 65 will require approximately $280,000 to cover medical costs such as out-of-pocket prescription drug expenses and Medicare premiums. By saving money in an HSA you can prepare for your family's future health care costs and also use your HSA as a buffer to protect your other retirement accounts from out of pocket medical expenses.

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If you choose to drop your HDHP, you can no longer contribute to your HSA. You may continue to use the funds, but no further deposits can be made. 

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