Health Savings Accounts (HSA) Administration

A Health Savings Account (HSA) is similar to an FSA. Employees contribute funds through a payroll deduction, which reduces their tax liability. Unlike an FSA, however, funds roll over and accumulate year-to-year if not spent. This allows employees to not only pay current medical expenses but also to save for future medical and retiree health costs tax-free.

HSA funds may be used to pay for most qualified medical expenses at any time without tax liability or penalty but beginning in early 2011, over-the-counter medications no longer qualify for reimbursement. Withdrawals for non-medical expenses are treated very similarly to those in an IRA: they may provide tax advantages if taken after retirement age, and they incur penalties if taken earlier. Unlike FSAs, HSAs must be linked to a High-Deductible Health Plan, sometimes called a catastrophic care plan. This is an inexpensive health insurance plan with a high deductible, generally in the thousands of dollars, and a high limit on out-of-pocket expenses. Funds in the HSA are intended to fill the gap left by the deductible and out-of-pocket expense limit.