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  1. What is an HSA?
  2. How to Qualify to Contribute to an HSA
  3. How Much Should You Contribute to an HSA?
  4. How and When to Use Your HSA Funds
  5. HSAs, FSAs and Limited-Purpose FSAs
  6. HSA Strategies for Different Life Stages
  7. Using Your HSA as a Retirement Savings Tool
  8. The Bottom Line

How to best use an HSA, if at all, is determined first by whether a high-deductible health plan makes sense for you. That depends on the stage of life you’re in as well as the state of your health – and the health of anyone else who is covered by your plan.

Let’s consider when you might want to use this type of insurance plan and how an HSA might factor in. The goal is always to get the best healthcare at the lowest cost and to spend within your means in the present while also planning for future expenses.

Young, Healthy and Childless

When you’re young, healthy, don’t have children and aren’t planning to in the near future, choosing a high-deductible health plan can save you money since the premiums will be lower than the premiums for plans with lower deductibles. You can take the premium savings and put them into an HSA. In addition, if your employer offers an HSA contribution on your behalf, you’ll be able to take advantage of this free money.

If money is tight, you can use your HSA balance to pay for any medical expenses you incur that year. If you don’t have any medical expenses or if you can afford to pay them out of pocket, you can think of your HSA as a medical nest egg to use in future years when your expenses might be higher. (Learn more about choosing the right insurance in Switch to a High-Deductible PPO to Get an HSA?)

Pregnancy and Childbirth

If having a child is in your short-term plans, a high-deductible health plan may not be your best option. Because of all the doctor visits and tests leading up to childbirth – not to mention the costs of a hospital delivery, especially if there are complications or your newborn has a health problem – you’re likely to pay your entire deductible out of pocket. You may even meet your out-of-pocket maximum. Can you afford to do that? Which insurance plan makes the most sense under your circumstances?

There’s no cut-and-dried answer to these questions. You’ll have to make your decision based on the specific insurance plans available to you and see which one is likely to save you the most money during this time of expensive medical care. Sometimes an HDHP’s monthly premium will be so much lower that it will almost make up for the higher deductible. In other words, if you’re looking at a platinum health insurance plan with a $1,500 deductible and $250 in monthly premiums ($3,000 annually) versus an HDHP with a $3,000 deductible and $125 in monthly premiums ($1,500 annually), the decision to choose the HDHP and be able to contribute tax-free dollars to an HSA is a no brainer as long as the plans are otherwise equal in providing the coverage you need. If you met or exceeded the deductible under both plans, you’d be out of pocket $4,500, but with the HDHP, $3,000 of that expense could come from pre-tax dollars, saving you $750 if you’re in the 25% federal tax bracket.

It’s good to know that if you decide not to go with an HDHP during this time – but you already have an HSA because you had an HDHP in the past – you can use your existing HSA balance, if there is one, to pay for your pregnancy-related medical expenses. This is true even though you’re not eligible to make additional contributions while you're not on an HDHP.

Another thing to consider at this stage of life is that your deductible and out-of-pocket maximum will both likely increase once you add your child to your health insurance plan. Make sure you’re prepared for those costs and factor them into your decision concerning whether to choose an HDHP and how generously to fund an HSA.

What if you get pregnant unexpectedly and won’t be able to switch out of your HDHP before you incur most of the associated medical expenses? Your best option is to compare prices among high-quality providers in your area and choose the most affordable one.

Raising Young Children

When you have young kids, it can feel like you’re at the doctor’s office every week. Similar to the pregnancy and childbirth phase of your life, this child-rearing phase might incur so many medical expenses that a high-deductible health plan isn’t to your best advantage. If that’s the case, again, you won’t be able to make additional contributions to an HSA while you aren’t enrolled in an HDHP, but you can still use any previous HSA balance to pay your current medical bills. This is where starting that medical nest egg when you were young can really pay off.

Middle Age

You might hit a sweet spot in your late 40s or 50s when your kids no longer need lots of healthcare and you’re still healthy yourself. With lower medical bills, this stage of life can be a good time to switch back to an HDHP and start funding an HSA again. There’s always a chance that someone could get really sick or suddenly need surgery, though, so you need to make sure you’ll be able to meet your deductible and handle the out-of-pocket maximum without going into debt in a worst-case scenario.

Make sure you understand how your plan handles individual deductibles and family deductibles, too. With an HDHP, the people covered by your plan might have to collectively meet the family deductible before any person gets coinsurance.

Planned Surgery

If you learn that you need a surgical procedure that your health insurance will cover, but you don’t have to undergo it right away, you might want to switch to a health insurance plan with a lower deductible. You’ll still be able to use your HSA to help pay for your surgery bills, so if you have an HDHP and an HSA this year and expect to have surgery next year, max out your HSA contributions if you can so you can get that tax savings on next year’s medical bills.

Chronic Medical Condition

If you develop a chronic medical condition that requires lots of ongoing medical expenses, an HDHP may no longer be to your advantage, which means you won’t be able to keep contributing to an HSA. As always, you’ll have to compare the plans available to you and see how your anticipated medical expenses will be covered by those plans to figure out what makes the most sense.

Job Transitions and Unemployment

If you become eligible for COBRA health insurance because you lose your group health coverage after getting laid off, you’ll be glad you have an HSA because you can use the balance to pay expensive COBRA premiums (or non-COBRA health insurance premiums) if you’re receiving federal or state unemployment compensation. Normally, you can’t use an HSA to pay health insurance premiums, but an exception exists to help people get through this challenging time. (For related reading, see What You Need to Know About COBRA Health Insurance.)


Using an HSA to help pay for medical expenses in retirement is a more advanced and complicated strategy. (Note: At age 65, you’re no longer permitted to contribute to an HSA.) We cover it in the next section of this tutorial.

Using Your HSA as a Retirement Savings Tool
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