HMA vs HSA: Key Differences and How They Work

Health-related savings accounts help individuals manage medical expenses, but not all options function the same way. Health Savings Accounts (HSAs) and Health Matching Accounts (HMAs) assist with healthcare costs but differ in structure, tax benefits, and usage rules. Understanding these differences is essential when choosing the right option.

Eligibility Requirements

HSAs are regulated by the IRS, meaning eligibility follows federal guidelines. To contribute in 2024, individuals must be enrolled in a High Deductible Health Plan (HDHP) that meets IRS standards. An HDHP must have a minimum deductible of $1,600 for self-only coverage or $3,200 for families, with maximum out-of-pocket costs capped at $8,050 and $16,100, respectively. Individuals cannot be enrolled in Medicare, claimed as a dependent, or have disqualifying coverage like a general-purpose Flexible Spending Account (FSA).

HMAs, on the other hand, are not subject to IRS regulations and have fewer restrictions. Providers determine eligibility, allowing participation regardless of insurance type. This includes individuals with traditional health plans, Medicare recipients, and even those without insurance. However, HMAs lack the regulatory protections of HSAs.

Contribution Structures

HSAs operate on a defined contribution model with annual limits set by the IRS. In 2024, individuals can contribute up to $4,150, while families can contribute up to $8,300. Those aged 55 and older can add a $1,000 catch-up contribution. Contributions can be made pre-tax through payroll deductions or after-tax with the option to deduct them when filing taxes. Employers may contribute, but total contributions from all sources cannot exceed the IRS limit.

HMAs use a matching system instead of a fixed contribution cap. Account holders make monthly payments, and the provider matches a portion. The matching percentage typically increases over time, with higher matches after a set period. Unlike HSAs, where contributions are controlled by individuals and employers, HMAs follow provider-determined funding formulas, which vary in growth rates and usage restrictions.

Tax Implications

HSAs offer three tax benefits: contributions are tax-deductible, earnings grow tax-free, and withdrawals for qualified medical expenses are not taxed. Payroll contributions avoid federal income, Social Security, and Medicare taxes, reducing taxable income. Independent contributions remain deductible, even without itemizing. Additionally, interest, dividends, and investment gains within an HSA remain untaxed if used for eligible medical costs.

HMAs do not provide tax advantages. Contributions are made with after-tax dollars, and there is no tax deduction. The provider’s matching contributions are not taxable income, but since HMAs do not generate tax-free investment earnings, they function more like structured savings plans than tax-efficient accounts. Withdrawals for medical expenses do not offer additional tax benefits.

Withdrawal Guidelines

HSA funds can be accessed anytime, but withdrawals must be for qualified medical expenses, as defined by IRS Publication 502, to remain tax-free. Non-medical withdrawals before age 65 incur income tax and a 20% penalty. After 65, non-medical withdrawals are taxed as ordinary income but avoid the penalty, making HSAs similar to retirement accounts in later years. Unused balances roll over indefinitely.

HMAs have structured withdrawal rules set by the provider. Funds typically become available incrementally, meaning account holders may not immediately access the full balance. Some plans impose waiting periods or limit the percentage of funds available at a given time. Additionally, HMAs often restrict usage to specific medical services that may not align with IRS-qualified expenses. If an account is closed early, some providers enforce forfeiture rules, meaning unused funds may not be refunded.