High Deductible Health Plans, or HDHPs, are medical plans that require you to pay a higher annual deductible before the insurance company begins covering most services. The deductible is the amount you pay out of pocket first. HDHPs also include a maximum out-of-pocket limit, which is the highest amount you may have to pay in a plan year for covered services, not including premiums. These limits differ for in-network and out-of-network care.
One important feature of HDHPs is that preventive services are covered without requiring you to meet the deductible first or may have a lower deductible than the plan minimum. Preventive care can include routine physicals and related tests, prenatal and well-child visits, immunizations, tobacco cessation programs, obesity and weight management counseling, and certain screening services. Always refer to your plan documents for specific details.
What Is a Health Savings Account?
A Health Savings Account, or HSA, is a tax-advantaged savings account that you own. It is set up to pay or reimburse eligible medical expenses. Funds in an HSA roll over from year to year, so unused amounts are not forfeited and remain available when you need them.
Why Consider an HSA?
An HSA offers several tax and financial advantages. Your contributions are made with pre-tax dollars. Your balance stays in your account until you use it. Any interest or investment earnings grow tax free. Withdrawals are also tax free when used for qualified medical expenses. The account is portable, which means it stays with you even if you change employers.
Eligibility Requirements
To participate in an HSA, you must meet all of the following conditions:
- You must be covered under an HDHP
- You cannot be enrolled in Medicare
- You cannot be claimed as a dependent on another person’s tax return
- You cannot have other disqualifying health coverage. This means:
- You and/or your spouse cannot participate in a health care FSA unless it is a limited purpose FSA
- You and/or your spouse cannot have unused FSA carryover from a prior year
- You and your spouse cannot participate in an HRA
HSA Contribution Limits for 2026
You may contribute up to:
- $4,400 if you have self-only medical coverage
- $8,750 if you have family or employee plus child(ren) coverage
If you are age 55 or older by the end of the year, you may contribute an additional $1,000 as a catch-up amount.
Using Your HSA Funds
You may take tax-free withdrawals to reimburse yourself for qualified medical expenses after you meet your plan deductible. If you use funds for non-qualified expenses, the amount is taxable and may also be subject to a 20 percent penalty.
What Counts as a Qualified Medical Expense?
Qualified expenses are those allowed under section 213(d) of the Internal Revenue Code. They must diagnose, treat, mitigate, cure, or prevent a medical condition or affect a function of the body. Items for general health or personal use do not qualify. Over-the-counter medications, drugs, and menstrual care products do qualify.
Most health insurance premiums are not considered qualified expenses, except for:
- Long-term care insurance (subject to limits)
- COBRA continuation coverage
- Coverage while receiving unemployment benefits
- Medicare premiums if you are 65 or older, except Medigap premiums
Whose Expenses Are Eligible for Reimbursement?
HSA funds may be used for qualified expenses incurred by:
- You
- Your spouse
- Dependents you claim on your tax return
- Individuals who could have been claimed as dependents except for one of the following:
- They filed a joint return
- They had gross income of $4,400 or more
- You or your spouse could be claimed as a dependent on someone else’s return
If You Leave Your Job or Stop HDHP Coverage
Your HSA remains yours even if you terminate employment or switch to a non-HDHP plan. You may, however, be responsible for ongoing account maintenance fees charged by the HSA administrator.
Tax Filing Requirements
If you contribute to or withdraw from your HSA during the year, you may need to file IRS Form 8889 with your federal tax return. You should consult your personal tax advisor regarding your specific tax situation.
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This article is for informational purposes only and is not intended as legal, tax, or benefits advice. Readers should not rely on this information for taking (or not taking) any action relating to employment, compliance, or benefits. Always consult with a qualified professional before making decisions based on this content.
