What Happens to My HSA If I Switch to a PPO?
Understand what happens to your Health Savings Account when you switch from an HDHP to a PPO plan. Learn about your existing funds and future eligibility.
A Health Savings Account (HSA) offers a tax-advantaged way to save for healthcare expenses. These accounts are designed to be paired with a High Deductible Health Plan (HDHP), allowing participants to contribute and use funds for qualified medical expenses. A common scenario involves individuals switching health insurance plans, such as moving from an HDHP to a Preferred Provider Organization (PPO) plan. Understanding the implications of such a change on an existing HSA is important for effective financial planning. This guide clarifies what happens to your HSA when you transition to a PPO.
HSA Contribution Eligibility
Eligibility to contribute to a Health Savings Account is directly linked to enrollment in a High Deductible Health Plan (HDHP). For 2025, an HDHP must have a minimum annual deductible of $1,650 for self-only coverage or $3,300 for family coverage. Additionally, annual out-of-pocket expenses, which include deductibles, co-payments, and other amounts but exclude premiums, cannot exceed $8,300 for self-only coverage or $16,600 for family coverage.
Preferred Provider Organization (PPO) plans do not meet these criteria to qualify as HDHPs. Therefore, switching from an HDHP to a PPO plan means you are no longer eligible to make new contributions to your Health Savings Account. This cessation of eligibility applies to contributions from both individuals and employers. Even if your PPO plan has a deductible, it falls below the IRS-mandated minimums for HDHPs.
Accessing and Using Existing HSA Funds
Funds already accumulated in your Health Savings Account remain your property, regardless of any change in your health insurance coverage. Your existing HSA balance continues to be accessible for qualified medical expenses on a tax-free basis.
Qualified medical expenses encompass a wide range of healthcare costs as defined by the IRS, including deductibles, co-payments, and prescription medications. Common examples also include dental treatments, vision care like eyeglasses and contact lenses, and even certain over-the-counter medications and menstrual care products. You can use your HSA funds to pay for these expenses for yourself, your spouse, or eligible dependents, even if you are no longer covered by an HDHP.
Considerations for Your HSA Moving Forward
Even without the ability to make new contributions, your Health Savings Account remains an active account. Many HSA custodians offer investment options, allowing you to invest your balance in various vehicles such as mutual funds, stocks, or exchange-traded funds. Any earnings from these investments grow on a tax-deferred basis, and withdrawals for qualified medical expenses remain tax-free.
Distributions from your HSA for non-qualified expenses are subject to tax implications. If you withdraw funds before age 65 for purposes other than qualified medical expenses, the amount is included in your taxable income and may incur an additional 20% penalty. After age 65, non-qualified distributions are taxed as ordinary income but are exempt from the 20% penalty. Should you enroll in an HDHP again in the future, you would regain eligibility to contribute to your Health Savings Account.