A health savings account is a tax-advantaged savings account available to those who are not eligible for Medicare (generally meaning those under age 65), are not covered by another health plan, are not claimed as a dependent on someone else’s federal tax return and who are in a high-deductible health plan. Health reimbursement arrangements generally are available to those in a high-deductible health plan who do not qualify for an HSA. Part of the premium is diverted into enrollees’ HSAs or HRAs. HSA enrollees may make automatic allotments to their accounts and those age 55 or older can make further “catch-up” contributions. HRA enrollees cannot make additional contributions.

Tax-free health savings account

Money from the accounts is available tax-free to pay the deductible as well as certain other qualified expenses. Eligible expenses include such things as medical plan deductibles, diagnostic services covered by your plan, long-term care premiums, and health insurance premiums if you are receiving federal unemployment compensation, over-the-counter drugs, LASIK surgery and some nursing services. See IRS Publication 502. Money withdrawn for other purposes is subject to income tax and if you are under 65 years old, an additional 10 percent tax penalty on the amount withdrawn.


Coverage after the deductible is met is either HMO or fee-for-service based, depending on the plan. Plans have out-of-pocket limits that vary among them, as well as varying policies on use of in-network versus out-of-network providers.

Unspent money is available in future years, unlike the flexible spending account health care account, which has an annual use-or-lose rule. HSA enrollees are not eligible for health care FSAs, although HRA enrollees are, so long as they are still working.

Flexible Spending Accounts

Active federal employees (but not annuitants) may participate in the flexible spending account (FSA) program. During the annual FEHB open season, employees eligible for FEHB (even those not currently enrolled) may elect a health care FSA. Those accounts can be used to pay, on a pre-tax basis, many out-of-pocket expenses not covered by FEHB plans, such as coinsurance amounts, copayments, deductibles, dental care, glasses, hearing aids, as well as certain over-the-counter medical supplies that are not cosmetic in nature.

Individuals enrolled in a high-deductible health plan with a health savings account may also enroll in a “limited expense” health care FSA that can be used to cover certain dental and vision care. Individuals have to weigh the pros and cons of such an account coupled with an HSA against a standard health care FSA, choosing the one that best fits their needs, especially if they expect an expense that can only be covered by only one or the other. This requires familiarizing themselves with the coverage provisions of each. They also should note that HSA funds can be carried over from year to year, and some of the funding in the HSA comes from the plan.


Individuals who are enrolled in either a consumer-driven health plan or high-deductible health plan coupled with an HRA may also enroll in a health care flexible spending account, as long as they are not annuitants.