Health Savings Account (HSA) Guide

Overview

With the number of individuals enrolled in high-deductible health plans (HDHPs) growing, and health care costs continuing to rise, health savings accounts (HSAs) provide an option for reimbursement of medical expenses on a tax-favored basis without some of the financial restrictions and risk that accompany a health reimbursement arrangement (HRA) or health flexible spending arrangement (FSA). An important difference is that HSAs are individually owned accounts that will stay with the account holder and are not tied to employment or to a particular employer.

There are specific rules about who is eligible to contribute to an HSA; how much may be contributed to an HSA; and which medical expenses are reimbursable by the HSA. Failure to comply with such requirements could result in the loss of the tax-favored treatment and potential excise taxes for the accountholder.

If the HSA rules are not followed (e.g., failure to be HSA-eligible, excess contributions, or reimbursement of ineligible expenses), the HSA accountholder, not the employer, is generally liable for any associated taxes and penalties. However, employees look to their employers to help them navigate such requirements. Therefore, it is important that employers help educate employees about HSA requirements if the employer is choosing to offer qualifying HDHP coverage or to facilitate HSA contributions, perhaps even asking employees to certify that they meet the criteria to be an eligible individual for HSA purposes. In addition, employers should be careful when evaluating various plan offerings and how they may affect HSA-eligibility.

HSA Eligibility

Only eligible individuals can make contributions to their HSA account. To be eligible to contribute to an HSA, an individual:

• Must be enrolled in a qualifying high-deductible health plan (HDHP);
• May not have any other “disqualifying coverage”; and
• Cannot be claimed as a tax dependent by another individual.

Eligibility for an HDHP is different from eligibility to contribute to an HSA. Eligibility for the HDHP depends upon the plan eligibility rules set by the employer and/or insurance carrier (e.g., averaging 30 or more hours of service per week), whereas eligibility to contribute to an HSA is determined by federal laws and regulations. Therefore, while an individual must be enrolled in a qualifying HDHP to be eligible to contribute to an HSA, an individual who is ineligible to contribute to an HSA could still enroll in HDHP coverage so long as the plan eligibility requirements are met.

Qualifying High-Deductible Health Plan (HDHP)

A qualifying HDHP must meet minimum deductible and maximum out-of-pocket (OOP) requirements.

2026 Minimum Deductible

• Single (individual) – $1,700; Other than single (family) – $3,400
• Embedded individual deductible in family coverage, if any, cannot be less than $3,400

2026 Maximum Out-of-Pocket

• Single (individual) – $8,500; Other than single (family) – $17,000
• Must have an embedded individual OOP maximum of $10,600 or less in any family coverage (if family OOP maximum exceeds $10,600)

2027 Minimum Deductible

• Single (individual) – $1,750; Other than single (family) – $3,500
• Embedded individual deductible in family coverage, if any, cannot be less than $3,500

2027 Maximum Out-of-Pocket

• Single (individual) – $8,700; Other than single (family) – $17,400
• Must have an embedded individual OOP maximum of $12,000 or less in any family coverage (if family OOP maximum exceeds $12,000)

See chart of requirements for 2014–2027 in Appendix A.

NOTE: For non-calendar year plans, the statutory minimum deductible amount that applies to the plan is the amount that applied at the beginning of the plan year. For example, for a plan year that begins November 1, 2026, the minimum deductible for a qualifying HDHP is $1,700 for individual coverage and $3,400 for family coverage (the 2026 minimum deductible amounts) – even though the plan extends into 2027.

Embedded Individual Deductible

If the family HDHP plan design includes an embedded individual deductible, the embedded individual deductible must be at least the amount of the required minimum family deductible to ensure that the HDHP does not begin paying before the minimum family deductible has been satisfied. See guidance from IRS Notice 2004-2 (Q&A #3). This is also addressed in IRS Publication 969.

Example 1: Family HDHP has a $6,000 deductible and an embedded individual deductible of $3,700. This is a qualifying HDHP because the embedded individual deductible is more than $3,400 in 2026 (or $3,500 in 2027).

Example 2: Family HDHP has a $5000 deductible and an embedded individual deductible of $2,800. This is NOT a qualifying HDHP because the embedded individual deductible is less than $3,400 in 2026 (or $3,500 in 2027).

Coordination of OOP Maximum with ACA Requirements

The ACA’s maximum OOP on essential health benefits requires that any individual who meets the ACA individual OOP maximum in expenses be reimbursed at 100% (an embedded individual OOP maximum).

For 2026, an individual enrolled in family HDHP coverage must have all expenses reimbursed at 100% once the individual incurs $10,600 in medical expenses, even if the HDHP OOP maximum is higher.

For 2027, an individual enrolled in family HDHP coverage must have all expenses reimbursed at 100% once the individual incurs $12,000 in medical expenses, even if the HDHP OOP maximum is higher.

Example 1: Family HDHP has a $5,000 deductible and maximum OOP of $13,000. Covered individuals are subject to plan copays and coinsurance once the deductible is met until $13,000 in medical expenses has been incurred by one or all covered individuals.

This is a qualifying HDHP but would violate ACA requirements because a single individual may have to incur up to $13,000 (>$10,600 in 2026 or >$12,000 in 2027) in medical expenses before receiving 100% plan coverage.

Example 2: Family HDHP has a $5,000 deductible and maximum OOP of $13,000 with a $7,000 embedded individual OOP maximum. Covered individuals are subject to plan copays and coinsurance once the deductible is met until $13,000 in medical expenses has been incurred by the family, or any covered individual alone incurs $7,000 in medical expenses.

This is a qualifying HDHP and would meet ACA requirements because a single individual would receive 100% plan coverage once $7,000 (<$10,600 in 2026 or <$12,000 in 2027) of medical expenses is incurred.

Marketplace Plans

In accordance with the One Big Beautiful Bill Act (OBBBA), for plan years beginning in 2026, bronze- level and catastrophic individual plans purchased through the Marketplace will be treated as HDHPs and allow for HSA eligibility, regardless of plan design. Because this change only affects individual policies, it will have little impact on most employer plans other than those employers offering an individual coverage HRA (ICHRA) or qualified small employer HRA (QSEHRA).

Example: Single bronze-level plan purchased through the Marketplace with a starting date of January 1, 2026, has a $2,000 deductible and maximum OOP of $9,500.

This is a qualifying HDHP even though a single individual would have to incur up to $9,500 (>$8,500 in 2026) in medical expenses before receiving 100% plan coverage.

Disqualifying Coverage

Most medical coverage available to an individual prior to meeting the minimum statutory HDHP deductible will cause HSA ineligibility. However, there is an exception for preventive coverage, as well as for permitted insurance and permitted coverage. Individuals who have such coverage prior to meeting the minimum statutory HDHP deductible remain eligible to contribute to an HSA.

Permitted insurance includes:

• Insurance in which substantially all of the coverage relates to liabilities incurred under workers’ compensation laws; tort liabilities; liabilities relating to ownership or use of property (e.g., homeowner or auto insurance); or similar liabilities as specified by the IRS;
• Insurance for a specified disease or illness (e.g., cancer insurance); and
• Insurance that pays a fixed amount per day (or other period) of hospitalization (e.g., hospital indemnity insurance).

Permitted coverage includes coverage for accidents, disability, dental care, vision care, or long-term care.

Preventive coverage includes preventive services described in IRS Notice 2004-23 and items considered to be preventive care and required to be covered with no cost-sharing under the ACA (PHSA §2713). Preventive coverage generally does not include any service or benefit intended to treat an existing illness, injury, or condition. However, to encourage treatment for some chronic illnesses, IRS guidance expanded the definition of preventive coverage to also include the medical care services and items listed in IRS Notice 2019-45. Then in IRS Notice 2024-75, the IRS expanded preventive care further to include over-the-counter (OTC) oral contraceptives and male condoms and also clarified that preventive care includes all types of breast cancer screening prior to diagnosis, continuous glucose monitors for those with diabetes, and certain insulin products.

In general, only coverage available to the individual affects HSA eligibility. If the spouse or dependents have disqualifying coverage (other than a general-purpose health FSA or HRA), that does not affect the individual’s ability to maintain and contribute to an HSA. For example, if an employee enrolls in family HDHP coverage and the spouse is enrolled in non-HDHP coverage or Medicare, the employee is still eligible to contribute to an HSA so long as the employee doesn’t have any disqualifying coverage. But keep in mind that a spouse’s or dependent’s coverage in a general-purpose health FSA or HRA may impact an individual’s HSA-eligibility if the individual is eligible to have their qualifying expenses reimbursed by the health FSA or HRA.

*In accordance with the OBBBA, for plan years beginning in 2025 and thereafter, telehealth coverage may be offered with no cost-sharing without impacting HSA eligibility.

**In accordance with the OBBBA, for plan years beginning in 2026 and thereafter, certain direct primary care (DPC) arrangements may be offered with no cost-sharing without impacting HSA eligibility.

Employee Assistance Program (EAP) or Wellness Program

Most employee assistance programs (EAPs) and wellness programs will not prevent HSA eligibility so long as they don’t provide significant benefits in the nature of medical care or treatment. Provision of referrals, screening and preventive care are not considered significant medical care.

Indian Health Service (IHS)

An individual who has received medical services from an IHS facility during the previous three months will be ineligible to make HSA contributions unless the medical services qualified as permitted coverage (e.g., dental and vision care) or preventive care (e.g., well-baby visits and immunizations). If an individual has not received disqualifying services in the previous three months, the individual will be HSA eligible. So, for example, if an individual is enrolled in a qualifying HDHP for all of 2027 but used IHS services in mid-April 2027 (causing HSA ineligibility for May, June, and July 2027) and therefore was eligible to contribute to an HSA nine months out of the year, the individual could contribute 9/12 of the annual maximum contribution amount for 2027.

Veteran Affairs (VA) Coverage

An individual with a disability rating from the VA may make HSA contributions, regardless of whether VA medical benefits have been received.

However, individuals who don’t have a disability rating from the VA are ineligible to contribute to an HSA if medical benefits have been received from the VA during the previous three months. If an individual has not received disqualifying services in the previous three months, the individual will be HSA eligible. So, for example, if the individual without a disability rating is enrolled in a qualifying HDHP for all of 2027 but used VA services once in mid-January 2027 (causing HSA ineligibility for February,

March, and April 2027) and therefore was eligible to contribute to an HSA nine months out of the year, the individual could contribute 9/12 of the annual maximum contribution amount for 2027.

Health Flexible Spending Arrangement (FSA)

Participation in a general-purpose health FSA disqualifies an individual from contributing to an HSA. A health FSA is typically available to reimburse expenses of the employee, the employee’s spouse, and the employee’s tax dependents, and therefore, in contrast to the general rule that a spouse’s disqualifying coverage doesn’t affect an individual’s HSA eligibility, a spouse’s participation in a general- purposes health FSA will cause both spouses to be ineligible to contribute to an HSA.

Employees who participate in a health FSA will not be eligible to contribute to an HSA until at least the end of the health FSA plan year, regardless of whether the health FSA funds have been used or exhausted prior to the end of the plan year. Grace period or carryover provisions may further extend ineligibility if funds roll over into the new plan year.

Health FSA with a Grace Period:

• If the participant has a zero balance at the end of the plan year, the individual is eligible to contribute to the HSA immediately following the end of the health FSA plan year.
• If the participant has an unused year-end balance, the grace period extends the participant’s period of HSA ineligibility through the end of the grace period (typically 2½ months), unless the employer makes the grace period limited-purpose on a uniform basis for all participants (i.e., participants could not be given a choice between a limited-purpose or general-purpose grace period).

Health FSA with a Carryover:

• If the participant has a zero balance at the end of the plan year, the individual is eligible to contribute to the HSA immediately following the end of the health FSA plan year.
• If the participant has an unused year-end balance, the individual is ineligible for HSA contributions for the entire next health FSA plan year (because the carryover dollars can be used any time during the year), unless the employer allows participants to waive the carryover or make the carryover limited-purpose. Unlike the grace period, the employer is allowed to convert the health FSA to limited-purpose for those who enroll in the HDHP and remain general-purpose for the other participants.

Additional information regarding the effect of health FSA carryovers on HSA eligibility may be found in IRS Chief Counsel Advice 201413005 (Feb. 12, 2014).

General-Purpose or Excepted Benefit HRA

Eligibility for reimbursement from a general-purpose or excepted benefit HRA prior to meeting the minimum statutory HDHP deductible disqualifies an individual from contributing to an HSA. A general-purpose or excepted benefit HRA, available to reimburse qualifying expenses beyond just dental and vision, will make employees, as well as spouses and dependents, who are eligible for such reimbursement ineligible to contribute to an HSA.

The HRA could be designed to be post-deductible or limited-purpose (only available to reimburse dental or vision expenses) to preserve HSA-eligibility. It is also possible to combine the two options, making the HRA limited-purpose until the deductible is met, and then making it available for reimbursement of all qualifying medical expenses (i.e., general purpose) once the deductible is met.

QSEHRA or ICHRA

QSEHRAs and ICHRAs may be designed to reimburse any qualifying expenses, including medical insurance premiums. A QSEHRA or ICHRA that is available solely to reimburse insurance premiums will not impact HAS eligibility. However, participation in a QSEHRA or ICHRA that provides reimbursement for qualifying medical expenses (e.g., out-of-pocket medical costs) beyond insurance premiums and dental or vision expenses will make an individual ineligible to contribute to an HSA.

Medicare

Individuals who are enrolled in any part of Medicare (including premium-free Part A) are not eligible to make or receive HSA contributions. Merely becoming eligible for Medicare (such as reaching age 65) does not end HSA eligibility by itself.

Medicare Part A enrollment is automatic for some individuals (i.e., those who are already receiving Social Security benefits when they turn 65). These individuals simultaneously become eligible, enrolled, and entitled upon reaching age 65, and thus become ineligible for an HSA. Choosing not to enroll in Part B does not help; Part A alone makes an individual ineligible to contribute to an HSA. Other individuals that are not receiving Social Security benefits will merely become eligible for Medicare upon reaching age 65 but must file an application to become enrolled in benefits.

Employees who have coverage under an employer-sponsored plan may want to delay Medicare enrollment for things such as maintaining eligibility to contribute to an HSA. But keep in mind that if entitlement to Medicare is delayed by deferring receipt of Social Security Benefits, then once a person is enrolled, Medicare benefits are generally retroactive up to 6 months, which means HSA ineligibility is retroactive as well. In this case, it is advisable to either cease making any contributions prior to enrolling in Medicare or calculate the maximum contribution for the year and contribute accordingly (e.g., if the individual enrolled in Medicare on November 1, the effective date may be backdated to April 1, which means the individual would only have been HSA eligible for 3 months (January, February, and March), and the maximum HSA contribution for that year would be 3/12 of the annual maximum + 3/12 of the $1,000 catch-up contribution).

Further, if an individual delays Medicare enrollment without having creditable coverage, they will be subject to penalties when they eventually do enroll in Medicare.

Direct Primary Care (DPC) Arrangement

Beginning in 2026, participation in DPC arrangements that meet the following requirements will not cause a loss of HSA eligibility:

• The DPC must be subject solely to a fixed monthly fee of no more than $150 for an individual or $300 for more than one individual (subject to annual indexing); and
• The DPC must involve medical care provided by a primary care practitioner. Procedures that require the use of general anesthesia, prescription drugs (other than vaccines), and laboratory services not typically administered in an ambulatory primary care setting do not qualify as primary care.