Is an HSA Worth It?

The logistics of health insurance and the financial tools associated with them can get a bit confusing.

Health savings accounts (HSAs) provide a tax-saving solution for paying out-of-pocket eligible medical expenses. You can use your HSA dollars as needed now or bank them to be used in future years. You can even invest with an HSA to grow your account. Sounds great, right?

But you might be wondering about the logistics of using an HSA and whether enrolling in one makes sense for you. Well, you’ve come to the right place to find all the details on how an HSA works, the pros and cons, and more.

If you’re wondering about what an HSA is or how it works, we explore that in depth below. But first, we share the hot takes from a variety of experts on whether an HSA is worth it.

To be eligible for an HSA, you must have a high-deductible health plan (HDHP). So the question also applies as to whether such a health insurance plan is worth it for you.

What the experts say:

• Save-or-spend options:
  • “You can keep funds in a custodial account or invest them. Healthy people who rarely use their benefits can treat it like a second retirement account. High utilizers can earmark funds for the costs they know are coming.” —Tyler Dalton, a Medicare insurance broker
  • “In general, I recommend an HSA when someone is eligible, can comfortably handle the higher deductible that usually comes with an HSA-qualified plan, and wants a more tax-efficient way to set aside money for medical expenses. One of the biggest advantages is flexibility: the money can be used for qualified healthcare costs, rolls over year to year, and can become a meaningful long-term asset for people who do not spend it right away.” —Scott Oosterhouse, a personal finance blogger and founder of Every Dollar Grows.
• Flexibility and security: “Tax benefits and long-term flexibility are big upsides as contributions are tax-deductible and withdrawals for qualified medical expenses are also tax-free. The money also rolls over annually and stays with the individual even if they change jobs. They can also provide consumers with more preparedness when dealing with denied claims or coverage gaps.” —Blaine Rogers, attorney and partner at Davis Levin Livingston
• Future reimbursement: “After 65 years old, you can even take out the money for non-medical expenses and only pay ordinary income tax on the withdrawal. No penalties. You know what else is crazy? Because it’s a receipt banking strategy you can pay your doctor/bill today out of pocket, keep the receipt then reimburse yourself tax-free decades down the road.” —Eric Croak, CFP, accredited wealth management advisor and president of Croak Capital.

An HSA isn’t right for everyone. Here are some situations that make them less appealing or not feasible.

• HDHP requirement: You must have a plan with a high deductible, so if you don’t have this, an HSA is not feasible.
• Financial drawback of HDHPs: Health insurance plans with high deductibles may not be the right choice if you or your family members have chronic health issues with frequent medical expenses. This is because your coverage (aside from preventive care and a few exceptions) won’t kick in until you’ve met the deductible. You can use your HSA to pay your deductible, however.
• Penalties and taxes for nonmedical withdrawals: If you need access to your HSA funds to pay for nonmedical expenses, you’ll be penalized and taxed for withdrawals before age 65. After age 65, you can withdraw HSA funds for nonmedical expenses without a penalty. But the withdrawal will be subject to income tax.
• Recordkeeping hassles: If tracking your medical expenses and saving paperwork is not something you want to do, then an HSA may not be for you.

What the experts say:

• HDHPs have lower premiums but higher out-of-pocket costs: “The HSA is sold as a no-brainer. It’s not, and the people who get burned the worst are usually households with a chronic condition who chose the HDHP because the premium looked cheaper. The math has to work on the insurance side first … The tax piece is a tiebreaker, not the reason.” —George Dimov, CPA, founder and CEO of Dimov Tax
• Requires strategizing: “If a bad year hits and you can’t cover that deductible out of pocket, the tax savings don’t offset the financial exposure. —Dalton
• May not be for people with ongoing medical costs: “I would be more cautious about recommending an HSA when someone has frequent medical needs, very tight monthly cash flow, or would struggle to cover a large deductible before the HSA balance has time to build. In that situation, the tax advantages may be real, but the plan structure itself can still create financial strain.” —Oosterhouse
• Requires some upfront cash:
• “A lot of people also don't realize how much they need to save, so they end up with a high deductible without having enough money in the HSA to offset the risk.” —Rogers
• May not work for “Pretty much all of the downside revolves around access to cash and your monthly premium … This isn't helpful if you live paycheck to paycheck.” —Croak

An HSA is a financial product paired with an HDHP. The HSA allows you to pay for qualifying out-of-pocket medical expenses with your pre-tax dollars. In doing so, you will lower your taxable income.

• HDHPs: These health insurance plans have high deductibles. A deductible is the out-of-pocket amount you pay for your medical expenses before your health insurance plan starts to cover them. (However, preventive care, such as a routine colonoscopy, is covered before you meet your deductible.) Your deductible resets at the top of each year.
• HSAs: These are financial accounts. You contribute an amount of your choosing (within IRS limits) from your pre-tax dollars, which helps reduce your taxable income. Then you use the funds to pay for qualifying out-of-pocket medical expenses. You can also choose to invest all or a portion of your HAS funds to grow over time.

To be eligible for an HSA, you must:

• Have a high-deductible health plan (HDHP)
• Have no other insurance
• Not be enrolled in Medicare
• Not be eligible to be claimed as a dependent on someone else’s tax return (even if they do not claim you)

Unlike flexible spending arrangements (FSAs), HSAs are not tied to your employer. This means that even if you’re self-employed and have an HDHP, you can still have an HSA.

You make contributions to your HSA, and contributions are subject to a maximum each year, set by the IRS. Here’s who can contribute.

• The account holder: If your name is on the HSA, you can contribute to it directly, either from your payroll (before taxes are withheld) if your employer offers this option, or from your personal bank account.
• Employers: Your employer can also make contributions to your account.
• Family members: Other family members, including your spouse, can contribute to your HSA.
• Other people: Anyone else can also contribute to your HSA on your behalf.

Many HSAs offer a debit card so that you can pay for qualifying healthcare costs directly from your account. However, some may require that you pay out-of-pocket first and then seek reimbursement from your HSA.

• Debit card: You swipe the card or use the card number to pay for your qualifying medical expenses directly from your HSA account.
• Reimbursement: You pay for qualifying medical expenses from your regular checking or savings account (or with a credit card), then you reimburse yourself by transferring funds from your HSA to your bank account.

The benefits of an HSA are multifactorial because it’s a flexible product you can use strategically.

Benefits of HSAs:

• Triple tax advantage: You can lower your tax burden in three ways.
• Portability: The account is yours and not tied to your job.
• Long-term planning and flexibility: You can use your HSA dollars now or later.
• Employer incentives: Sometimes employers contribute as well.

Let’s explore these concepts more in depth.

An HSA can help lower your tax burden, and you can think about this major plus in three ways.

• Your contributions to your HSA are not taxed: If you contribute directly from your payroll, the dollars are taken out of your paycheck and placed in your HSA before your employer withholds income and payroll tax. If you’re self-employed, your contributions to an HSA are tax-deductible when you file your taxes.
• Your funds in your HSA grow tax-free: You can even invest your HSA dollars in stocks, mutual funds, and more. Growth isn’t subject to taxes.
• Your withdrawals are tax-free: You can withdraw money from your HSA to use for qualifying medical expenses without paying taxes on the withdrawal amount. After age 65, you can withdraw money from your HSA to be used for any reason, not just qualifying medical expenses. However, nonmedical expenses are taxed like regular income at that time.

The funds in your account carry over from year to year. You don’t lose the funds if you don’t use them by year’s end. As with a 401K or an IRA (individual retirement account), your HSA is portable through a rollover. You can take your HSA with you if you switch jobs, become self-employed, retire, or switch health plans.

You can use your HSA funds now, three years from now, or 55 years from now—you get the idea. You can even use your HSA funds somewhat retroactively, but with a caveat.

• As needed: You might choose to use your HSA funds every time you have an out-of-pocket medical expense.
• Later: You might choose to save your HSA funds and use them down the road when you have a large medical expense.
• Retroactively: You can’t get reimbursed for qualifying medical expenses you incurred before you had your HSA, only those you incurred after the HSA was in place. However, you can choose to reimburse yourself down the road for a qualifying medical expense you incurred in previous years. Let’s say you enrolled in an HSA for 2026, and you use your regular checking account to pay for a prescription medication. If you’ve saved your receipts and any other necessary documentation, you can get reimbursed for that expense in 2027 or even 2037.

Your employer might offer HSA-related incentives, but these will vary by company. Here are a few examples:

• Flat contributions: Some employers contribute a flat amount to your HSA, even if you don’t contribute to it. The amount may be different depending on whether you have individual or family coverage.
• Matching contributions: Some employers match your contributions dollar for dollar up to a maximum amount.
• Wellness incentives: Some employers contribute to your HSA if you engage in certain wellness or health-screening programs.

Now that you’ve had an in-depth look at the benefits and potential drawbacks of HSAs, you might need a quick recap of the basics.

You’ve got one more thing to consider regarding whether an HSA might be worth it for you. Just because an item isn't automatically HSA-eligible doesn’t mean it’s off the table. Many health products and services could qualify when they’re medically necessary to treat or prevent relevant medical conditions and supported by proper documentation (like an LMN).

For example, you might be able to purchase a red-light therapy device with your HSA dollars. Such a device might be an eligible expense if you’re using it to address a specific medical condition. If approved by an independent licensed clinician, such conditions might include alopecia (if a device for hair), chronic pain, or rheumatoid arthritis.

You might need a letter of medical necessity (LMN). An LMN is a formal document from a licensed healthcare provider that explains why a certain product, treatment, or service is necessary to treat, mitigate, or prevent a medical condition.

Certain health products and services may be eligible for qualified customers with an LMN issued by an independent practitioner when the item is used to address a specific medical condition.

Truemed* specializes in helping you maximize your HSA and other health-related benefits (such as an FSA):

• First, you can check whether a product or service is normally considered a qualifying medical expense or whether you might need an LMN.
• Complete a health intake survey that will be reviewed by an independent licensed clinician.
• Buy the item; either pay directly with your HSA/FSA card at checkout, or pay with a regular credit/debit card and seek HSA/FSA reimbursement afterward.
• The independent licensed practitioner will review your medical history, and if you qualify, will issue an LMN. Truemed itself does not make eligibility determinations.
• Truemed also offers support in the event you get a denial of reimbursement and need to provide substantiation documentation.

*Truemed is for qualified customers. HSA/FSA tax savings vary. Learn more at truemed.com/disclosures