health savings account health savings account a health savings account (hsa) is a tax-advantaged medical savings account available to taxpayers in the united states who are enrolled in a high-deductible health plan (hdhp). the funds contributed to an account are not subject to federal income tax at the time of deposit. unlike a flexible spending account (fsa), hsa funds roll over and accumulate year to year if they are not spent. hsas are owned by the individual, which differentiates them from company-owned health reimbursement arrangements (hra) that are an alternate tax-deductible source of funds paired with either high-deductible health plans or standard health plans. this article is about medical savings accounts in the united states. for international uses, see medical savings account. health care in the united states government health programs federal employees health benefits program (fehbp) indian health service (ihs) medicaid / state health insurance assistance program (ship) medicare prescription assistance (spap) military health system (mhs) / tricare children's health insurance program (chip) program of all-inclusive care for the elderly (pace) veterans health administration (vha) private health coverage consumer-driven healthcare flexible spending account (fsa) health reimbursement account (hra) health savings account (hsa) high-deductible health plan (hdhp) medical savings account (msa) private fee-for-service (pffs) health insurance in the united states managed care (ccp) exclusive provider organization (epo) health maintenance organization (hmo) preferred provider organization (ppo) medical underwriting health care reform law emergency medical treatment and active labor act (1986) health insurance portability and accountability act (1996) medicare prescription drug, improvement, and modernization act (2003) patient safety and quality improvement act (2005) health information technology for economic and clinical health act (2009) patient protection and affordable care act (2010) state level reform municipal health coverage healthcare in california healthy san francisco healthy way la my health la fair share health care act (maryland) healthy howard (howard co., maryland) hsa funds may be used to pay for qualified medical expenses at any time without federal tax liability or penalty. beginning in early 2011 over-the-counter medications could not be paid with an hsa without a doctor's prescription, although that requirement was lifted as of january 1, 2020. withdrawals for non-medical expenses are treated very similarly to those in an individual retirement account (ira) in that they may provide tax advantages if taken after retirement age, and they incur penalties if taken earlier. the accounts are a component of consumer-driven health care. proponents of hsas believe that they are an important reform that will help reduce the growth of health care costs and increase the efficiency of the health care system. according to proponents, hsas encourage saving for future health care expenses, allow the patient to receive needed care without a gatekeeper to determine what benefits are allowed, and make consumers more responsible for their own health care choices through the required high-deductible health plan. opponents observe that the structure of hsas complicates the decision of whether to obtain medical treatment, by setting it against tax liability and retirement-saving goals. there is also debate about consumer satisfaction with these plans. history hsas were established as part of the medicare prescription drug, improvement, and modernization act, which included the enactment of internal revenue code section 223, effective for tax years beginning after december 31, 2003, signed into law by president george w. bush on december 8, 2003. they were developed to replace the medical savings account system. a survey of employers published by the kaiser family foundation in september 2008 found that 8% of covered workers were enrolled in a consumer-driven health plan (including both hsas and health reimbursement accounts), up from 4% in 2006. the study found that roughly 10% of firms offered such plans to their workers. large firms were more likely to offer a high-deductible plan (18%), but enrollment was higher in small firms (8% of covered workers, versus 4% in larger firms). as of 2012, these numbers had increased. approximately 31% of firms offering health insurance offered an hsa (26%) or an hra (5%) option. large firms (38%) were somewhat more likely than small (31%) firms to offer such options. 11% of covered workers were in hsas, while 8% were in hras. in small companies, 24% were in high-deductible health plans vs 17% in larger firms. a survey of health insurers performed by america's health insurance plans (ahip) found that 4.5 million americans were covered by hsa-qualified health plans as of january 2007. of those, 3.4 million were covered through employer-sponsored plans, and 1.1 million were covered by individually purchased hsa-qualified plans. this represented an increase of 1.3 million since january 2006. in the individual market, 25% of new purchasers bought hsa-qualified plans. hsa-qualified plans represented 17% of new policies sold in the small group market and 8% of new policies sold in the large group market. a follow-up survey by ahip reported that the number of americans covered by hsa-qualified plans had grown to 6.1 million as of january 2008 (4.6 million through employer-sponsored plans and 1.5 million covered by individually purchased hsa-qualified plans). hsa-qualified plans represented 27% of new purchases in the individual market, 31% of new enrollment in the small group market and 6% of new enrollment in the large group market. in january 2008, market research firm celent moderated its earlier projections, citing the hsa market's "disappointing early showing," and projected 12.5 million accounts by 2012. a survey published by ahip in may 2009 found that 8 million people were covered by hsa/high-deductible health plans in january 2009. of them, 1.8 million were covered by individual policies and approximately 6.2 million were covered by a group plan. the government accountability office (gao) reported in april 2008 that many individuals enrolled in hsa-qualified health plans did not open tax-qualified health savings accounts, and individuals that had health savings accounts had higher incomes than others. according to the report, nationally representative surveys conducted by blue cross blue shield association in 2005 to 2007 found that 42–49% of hsa-eligible plan enrollees did not open health savings accounts in those years. based on an examination of internal revenue service (irs) data, gao found that tax filers who reported health savings accounts activity had higher average incomes than other tax filers. contributions into health savings accounts ($754 million in 2005) were roughly double withdrawals from the accounts ($366 million). average contributions were also roughly twice average withdrawals ($2,100 versus $1,000). 41% of tax filers who made a contribution into a health savings account did not make any withdrawals; 22% withdrew more than they contributed during the year. data released in 2012 indicate that the use of health savings accounts is increasing. ahip reported in may 2012 that the number of people covered by an hsa-eligible high-deductible health plan more than doubled between january 2008 to january 2012 (going from 6.1 million to 13.5 million). the split between group and individual plans was 11 million as opposed to 2.5 million, and the gender distribution of health savings accounts between male and female enrollees was an even 50%. among individual plan holders, 51% were under age 40, and 49% were age 40 or over. the top five states with health savings account/high-deductible health plan enrollment were california (1 million), texas (0.76 million), illinois (0.72 million), ohio (0.66 million), and florida (0.54 million). also, a survey released in february 2012 by j. p. morgan chase of the 900,000 health savings accounts that it manages indicates that contributions to health savings accounts have been steadily increasing. between 2009 and 2011, the average chase health savings account balance rose by 11% annually, and the average employee contributions increased by 7% in 2011. also, in 2011, 42% more dollars were transferred from health savings account cash into health savings account investment accounts than were transferred out. it is believed that the affordable care act, which requires all employers with 50 or more employees to offer health insurance, may be fueling some of this growth. high-deductible health plan premiums tend to be lower, and make an attractive option for both employers and employees. since health savings account holders are required to be covered by a high-deductible health plan, this creates an opportunity for more growth in the health savings account space. as of december 31, 2022, according to research conducted by devenir, an estimated $104 billion is held in 35.5 million health savings accounts. operation deposits qualifying for an hsa (quotes from irs publication 969) to be an eligible individual and qualify for an hsa, you must meet the following requirements. you are covered under a high deductible health plan (hdhp), described later, on the first day of the month. you have no other health coverage except what is permitted under other health coverage, later. you aren't enrolled in medicare. you can't be claimed as a dependent on someone else's tax return. for exceptions and details see irs publication 969. deposits to a health savings accounts may be made by any policyholder of an hsa-eligible high-deductible health plan, by the employer, or any other person. if an employer makes deposits to such a plan on behalf of its employees, all employees must be treated equally, which is known as the non-discrimination rules. if contributions are made by a section 125 plan, non-discrimination rules do not apply. employers may treat full-time and part-time employees differently, and employers may treat individual and family participants differently; the treatment of employees who are not enrolled in a hsa-eligible high-deductible plan is not considered for non-discrimination purposes. as of 2007, employers may contribute more for non-highly compensated employees than highly compensated employees. contributions from an employer or employee may be made on a pretax basis by an employer. if that option is not available through the employer, contributions may be made on a post-tax basis and then used to decrease gross taxable income on the following year's form 1040. employer pre-tax contributions are not subject to federal insurance contributions act tax or medicare taxes, but employee pre-tax contributions not made under cafeteria plans are subject to fica and medicare taxes. regardless of the method or tax savings associated with the deposit, the deposits may only be made for persons covered under an hsa-eligible high-deductible plan, with no other coverage beyond certain qualified additional coverage. initially, the annual maximum deposit to a health savings account was the lesser of the actual deductible or specified internal revenue service limits. congress later abolished the limit based on the deductible and set statutory limits for maximum contributions. all contributions to a health savings account, regardless of source, count toward the annual maximum. a catch-up provision also applies for plan participants who are age 55 or over, allowing the irs limit to be increased. this "catch up" contribution limit was set to $500 for 2004, increasing $100 each year until it reached a maximum of $1,000 in 2009. for 2019, the contribution limit was $3,500 for single or $7,000 for married couples and families. for 2020, the contribution limit is $3,550 for single or $7,100 for married couples and families. for 2021, the contribution limit will be $3,600 for single or $7,200 for married couples and families. all deposits to a health savings account become the property of the policyholder, regardless of the source of the deposit. funds deposited but not withdrawn each year will carry over into the next year. policyholders who end their hsa-eligible insurance coverage lose eligibility to deposit further funds, but funds already in the health savings account remain available for use. the tax relief and health care act of 2006, signed into law on december 20, 2006, added a provision allowing a taxpayer, once in their life, to rollover ira assets into a health savings account, to fund up to one year's maximum contribution to a health savings account. state income tax treatment of health savings accounts varies. california and new jersey impose state income taxes on contributions, interest earned, and capital gains from health savings accounts. new hampshire and tennessee don't have state income taxes but they do impose a tax on dividends and interest, including health savings accounts. contribution limits a taxpayer can generally make contributions to a health savings account for a given tax year until the deadline for filing the individual's income tax returns for that year, which is typically april 15. all contributions to a health savings