What Is a Health Equity HSA and How Does It Work?

A Health Savings Account (HSA) is a tax-advantaged savings account designed for healthcare expenses. It allows individuals to pay for qualified medical costs with pre-tax dollars. Funds contributed to an HSA grow tax-free, and distributions for eligible medical expenses are also tax-free, providing a triple tax benefit. This account type is associated with a High-Deductible Health Plan (HDHP), a health insurance plan featuring higher deductibles but often lower monthly premiums.

HealthEquity is a prominent administrator, facilitating the establishment and management of HSAs for millions of individuals. HealthEquity helps account holders manage their funds, pay for medical services, and invest their HSA balances. Their role involves providing the platforms and services necessary for individuals to utilize their HSAs.

Understanding HSA Eligibility

To be eligible for a Health Savings Account, an individual must meet specific IRS criteria. A primary requirement is coverage under a High-Deductible Health Plan (HDHP) on the first day of the month for which contributions are made. For 2025, an HDHP must have a minimum annual deductible of $1,650 for self-only coverage or $3,300 for family coverage. The plan’s annual out-of-pocket expenses, including deductibles, co-payments, and other amounts but excluding premiums, cannot exceed $8,300 for self-only coverage or $16,600 for family coverage.

Beyond HDHP enrollment, individuals must not have any other health coverage that is not an HDHP, with certain exceptions. Additional coverage like a general-purpose Flexible Spending Account (FSA) or secondary insurance that pays for non-preventive care before the HDHP deductible is met disqualifies an individual. Exceptions exist for dental, vision, or certain disease-specific insurance, as well as limited-purpose FSAs.

Individuals cannot be enrolled in Medicare. While Medicare enrollment disqualifies future HSA contributions, individuals can be HSA-eligible for the months before their Medicare coverage begins. Additionally, an individual cannot be claimed as a dependent on another person’s tax return.

HSA Funding and Usage Rules

Health Savings Accounts offer distinct tax advantages: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. Contributions can be made by the eligible individual, an employer, or any other person. Employer contributions are not included in the individual’s income, and personal contributions are deductible even if the individual does not itemize deductions.

The IRS sets annual contribution limits for HSAs, which vary based on the type of HDHP coverage. For 2025, the maximum contribution is $4,300 for individuals with self-only HDHP coverage and $8,550 for those with family HDHP coverage. These limits include any employer contributions. Individuals aged 55 and over can make an additional “catch-up” contribution of $1,000 annually. If both spouses are 55 or older and otherwise eligible, each can make this $1,000 catch-up contribution to their separate HSAs.

Funds within an HSA can be used for qualified medical expenses. These expenses include costs for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for affecting any structure or function of the body. Examples include doctor visits, hospital stays, prescription medications, dental treatments, vision care, and certain over-the-counter medicines. HSA funds can also be used for qualified long-term care insurance premiums, COBRA premiums, or health insurance premiums while unemployed.

Using HSA funds for non-qualified expenses before age 65 incurs tax penalties. The withdrawn amount is included in the individual’s gross income and is subject to regular income tax. A 20% penalty tax is applied to the non-qualified withdrawal. However, once an account holder reaches age 65 or becomes disabled, the 20% penalty is waived, though withdrawals for non-qualified expenses remain subject to ordinary income tax. HSAs allow for investment of funds, enabling the account balance to grow over time. This investment growth is tax-free, further enhancing long-term savings.

Administering Your HSA Account

Establishing an HSA account begins after enrolling in an HSA-eligible High-Deductible Health Plan. Many employers offer HSAs as part of their benefits package, providing a convenient way to open an account. Individuals can also open an HSA directly with a qualified financial institution, such as a bank or investment firm, even if their employer does not offer one.

Once an HSA is established, contributions can be made through various methods. If offered by an employer, payroll deductions are a common way to contribute, as funds are deducted pre-tax from wages, reducing taxable income immediately. Individuals can also make direct contributions to their HSA via bank transfers or other electronic methods. All contributions must be made in cash, as contributions of stock or property are not permitted.

Accessing funds for qualified medical expenses is straightforward. Many HSA administrators provide a debit card linked to the account, allowing for direct payment at the time of service. Alternatively, individuals can pay for medical expenses out-of-pocket and then submit claims for reimbursement from their HSA. This reimbursement can be processed as a direct transfer to a personal bank account or through online bill pay features offered by the administrator. Some administrators also offer tools for managing investments within the HSA, allowing account holders to select from various investment options like mutual funds once a certain cash threshold is met.