What Is an HSA Card and How To Use It?

Medical expenses are a major cause of bankruptcy in the U.S. The average American spends about $12,500 per year on health care. That’s a lot of money to pay out-of-pocket, especially when you consider that most people don’t have thousands of dollars sitting around in a savings account.

What many people don’t realize is that there are ways to lower your medical expenses and save money without sacrificing quality care. One way to do this is by opening a health savings account (HSA).

In this guide, we’ll cover what an HSA card is and how to use it, and what are HSA’s.

What Is an HSA Card?

The Health Savings Account (HSA) Card is a debit card tied to your HSA account – a tax-advantaged account from which money can be used on future medical expenses.

An HSA card allows you to access your funds for qualified medical expenses and can be used anywhere debit cards (Visa) are accepted – online, in-store, or even at a doctor’s office. The card can be requested from your HSA financial institution or HSA administrator and usually does not involve any additional costs, aside from a possible activation fee.

Qualified medical expenses include:

• Co-payments
• Co-insurance
• Deductibles
• Medicare premiums
• Doctor visits
• Prescription drugs
• Dental care (but not all)
• OTC medication when prescribed by a doctor
• Hospital stays and other medical services (such as physical therapy)
• Vision care (glasses, contacts, or eye surgery)
• Hearing aids
• Medical equipment and supplies (such as crutches or wheelchairs)

The funds can be used on anyone covered under your health plan, be it your spouse, child or someone else. If you don’t use your HSA funds within the year, they roll over to the next year, as there’s no timeframe for medical expenses.

However, if you do pass away and you have unused funds in your HSA account, any named beneficiary or beneficiaries will be able to use the money to pay for eligible medical expenses.

If there’s no beneficiary named on your account, the money will be returned to your estate. Also, your HSA account will be closed upon your death.

How Does an HSA Work?

Since we have a separate, more comprehensive guide on what is a health savings account and how it works, we’re going to be very brief in our explanation of what is an HSA account.

What you need to know is that they are very similar to other savings accounts, although there are some differences. First of all, you need to have a high-deductible health plan (HDHP) to contribute to this account – it can be private or offered by the employer, but the deductible needs to be over the minimum amount, which changes every year.

Once you have HDHP, you can open an HSA account at any bank that offers this service. Some banks offer the option to take the contribution either as a direct deposit or from your paycheck, which can be nice if you tend to forget about making payments.

As for the costs of an HSA account, some banks have a monthly fee while others don’t. Some will also offer a free checking account when opening an HSA – there’s no rule. Once your account is set, your HSA card will be mailed to you.

The money on the account grows tax-free until it is used on qualified medical expenses, and the contributions are made before taxes. If the funds are used for another purpose and you’re under the age of 65, a 20% penalty will apply – those over 65 can withdraw the money for non-medical expenses as well.

When Can I Start Using My HSA Funds for Qualified Medical Expenses?

You can start using your HSA funds for qualified medical expenses at any time. You don’t need to wait until the end of the year, as many people assume. In fact, it can be beneficial for you if you start using HSA funds early in a given year because this will help lower your taxable income for that tax year.

Who Is Eligible for an HSA Account?

The following people are eligible for HSAs:

• Anyone who has a high-deductible health plan (HDHP) and is not enrolled in any other type of health insurance coverage, including Medicare. This includes individuals who have HDHP coverage through an employer-sponsored group plan (including self-funded plans), as well as those who purchase their own HDHP coverage.
• Individuals who are not claimed as dependents on another person’s tax return.

Do I Have To Report HSA Contributions and Withdrawals on My Taxes?

Yes. You will need to report any contributions, as well as withdrawals to pay for eligible medical expenses, on your tax return. The IRS requires that you report HSA contributions on Form 8889, which is a part of your 1040 tax form. You will also need to report your withdrawals on Form 1099-SA when you file your taxes.

You should receive these forms from your HSA provider, along with instructions on how to fill them out. The forms must be attached to your tax return.

How Much Can I Contribute Yearly?

The maximum contribution amount changes annually. In 2024, that was $4,150 for an individual and $8,300 for a family. Those over 55 years old can contribute an additional $1,000 each year.

Important: If your employer contributes to your HSA, the amounts from you and them will be combined. If you exceed the limit, you will be given a penalty – the amount depends on how much you exceeded the limit by, and can reach as much as 6% of your HSA balance.

What Should I Consider When Choosing an HSA Provider?

There are a few things you should take into consideration, such as:

• FDIC insurance – If a provider is not FDIC-insured, they won’t be able to offer you insurance protection if anything goes wrong with your account.
• Available investment options – Some providers have more options than others, and others don’t offer any investment options at all, so if you want to invest in stocks, bonds, or other, make sure the provider you are considering offers it.
• Cost – Some providers charge a monthly or annual fee, as well as require other payments associated with the account. They might also have a specific sum you need to deposit each month.

The Bottom Line

Health savings accounts are a great way to save money for healthcare. They can help you avoid paying large amounts of money out of pocket on doctor visits and other health-related costs, which can be particularly helpful if you have a chronic illness or are dealing with an unexpected emergency.

However, HSAs are not for everyone, so if you are considering an HSA, it’s important to understand how HSAs work and what they can do for you.