Pros and Cons of an HSA

When evaluating HSAs, consider these pros and cons.

Health Savings Account - Pros

  1. Tax Savings - Contributions you make to your HSA are tax deductible. Likewise, any contributions made by your employer are excluded from your gross income ("pre-tax").
  2. Full Rollover - All contributions remain in your HSA indefinitely until you use them. There is no vesting schedule, no penalty if you don’t use the money, and your money rolls over year to year.
  3. No Tax on Qualified Withdrawals - Withdrawals used to pay for qualified medical expenses for you, your spouse, and your dependents are never taxed. Interest you earn on the account accumulates over the years, tax-deferred. If used to pay for qualified medical expenses, the withdrawal is tax-free.
  4. Portability - The account is portable and yours to keep forever. It stays with you even if you change employers or leave the workforce.

Health Savings Account - Cons

  1. Contribution Limits - With HSAs, there are annual contribution maximums which limit how much you can contribute each year. This article discusses contribution limits.
  2. Eligibility Requirements - To contribute to an HSA, you are required to be enrolled in an HSA-Qualified High-Deductible Health Plan. Learn about HSA-Qualified High Deductible Health Plans.
  3. Complicated Rules - With HSAs, the individual is the plan administrator. As such, many individuals find the rules and record keeping of HSAs to be complicated and cumbersome.

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How do HSAs compare to HRAs?

HSAs are commonly confused with health reimbursement arrangements (HRAs) because of their ability to be used toward out-of-pocket health expenses, but they have a few key differences that employers should be aware of.

HSAs are an account that employers and employees can regularly contribute to. With the account, employees accumulate money and eventually spend it on health-related expenses or cash it in during retirement. HSAs are a tax-free method for employers to support their employees’ health benefit needs, but can only be offered alongside a high deductible health plan. Employer contributions to an HSA are a fixed cost and the employee takes them when they leave.

HRAs are a tax-free arrangement—not an account—where employers reimburse employees for health-related expenses and only pay for it when their employees use it. Employees may not contribute any money in the arrangement and employers only incur the expense when employees incur them. Unused allowance stays with the employer if an employee leaves the company.

With an HRA, employees can shop for individual health insurance that fits their needs best, rather than having to accept or deny the group health plan their employer chooses. This gives employees more control over their healthcare than any other type of health benefit, and employers get the added benefit of setting a fixed allowance that cannot be exceeded.

Download our comparison chart: HRAs vs HSAs vs FSAs

PeopleKeep offers three different types of HRAs that can meet any organization’s health benefits needs. Take our quiz below to find out which one matches you best:

Find out which HRA fits your organization's needs best: take the quiz.

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Comparing the PeopleKeep health reimbursement arrangements

PeopleKeep offers HRAs that meet nearly every employer need, including: a Qualified Small Employer HRA (QSEHRA), an Individual Coverage HRA (ICHRA), and a Group Coverage HRA (GCHRA). Choosing the one that is right for you can feel complicated, so we’ve broken it all down with our HRA comparison chart.

Compare our three HRAs using the chart below:

HRA Comparison Chart




Group Coverage HRA

Business size restrictions

Limited to businesses with fewer than 50 FTE employees



Allowance amount restrictions

Limited to $5,450 for self-only employees and $11,050 for employees with a family in 2022. Businesses cannot give different employees different allowance amounts based on criteria other than family status.


No minimum or maximum contribution requirements. Businesses can give different employees different allowance amounts based on job-based criteria.

Group health policy requirements

Can’t be offered with a group health policy

Can be offered with a group health policy, but employees cannot have a choice between the group policy and the HRA.

Must be offered with a group health policy

Individual health policies permitted


Yes; in fact, they're required for participation in the HRA.


Premium tax credit coordination requirements

Employees must reduce their premium tax credit by the amount of their HRA allowance.

Employees cannot collect premium tax credits and participate in the ICHRA. However, if the ICHRA allowance is considered unaffordable, employees may waive the HRA and collect the credits.

N/A. These HRAs can’t reimburse employees for individual premiums.

Annual rollover permitted




Medical expenses available for reimbursement

Any or all items listed in IRS Publication 502

Any or all items listed in IRS Publication 502

Any or all items listed in IRS Publication 502 with the exception of individual insurance premiums

Employee eligibility guidelines

All full-time employees are eligible. Businesses can decide on part-time employee eligibility.

Businesses can decide on eligibility based on 11 different employee classes.


Key Features of Health Savings Accounts

To better understand HSAs, here is a summary of key features:

  • Anyone may contribute to an HSA (ex: employer, employee).
  • Withdrawals from your HSA after age 65 are tax-free.
  • There are certain eligibility requirements to open an HSA (covered below)
  • The maximum annual HSA contribution for 2021 is $3,600 (single) and $7,200 (family).
  • HSA funds may be used on any unreimbursed medical care expenses as defined by the IRS (use our eligibility tool), and insurance premiums for unemployed individuals.
  • HSA funds never expire.
  • The individual owns the HSA regardless of employment.
  • Withdrawals for non-medical purposes are subject to income tax and a 20% penalty tax for individuals under the age of 65.
  • Once the account holder reaches age 65 (Medicare eligibility age), becomes disabled, or dies, withdrawals for nonmedical purposes are subject to income tax only, with no penalty.

How to Maximize Your Health Savings Account

  1. Contribute the Maximum Amount Allowed

If you're using the HSA as a retirement savings vehicle and/or you anticipate having a lot of out-of-pocket medical expenses in the future, aim to contribute the maximum amount allowed each year.

  1. Know What Expenses are Eligible

You may spend the HSA money tax-free on out-of-pocket medical expenses, such as co-payments for medical care, prescription drugs, or bills not covered by insurance such as vision and dental care. The IRS determines the types of medical expenses you can use tax-free with HSA funds. They are listed in IRS Publication 502.

If you use HSA funds for non-medical expenses, you are required to pay taxes on the withdrawal, plus a 20% penalty before age 65.

  1. Keep Your Receipts

Lastly, you must keep receipts for everything you purchase using your HSA. If your HSA is ever audited you will need a record of your expenses. The easiest way to do this? Take a picture or scan your receipts and keep them electronically.

Offering an HSA alongside an HRA

Another great feature about HSAs and HRAs are that they can be offered simultaneously. To be eligible, participants must be covered by a high deductible health plan (HDHP). For this reason, many employers who wish to offer HSA benefits either let employees shop for their own policy and opt into the HSA benefit, or they offer an HDHP, pair it with a group coverage HRA (GCHRA) and offer an HSA to help employees cover out of pocket medical expenses.

Learn more about offering an HSA and an HRA

Learning Resources

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ICHRA made easy

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GCHRA made easy

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Frequently Asked Questions

What is the Difference between an HRA, HSA, and FSA?

Health Reimbursement Arrangements (HRAs), Health Savings Accounts (HSAs), and Flexible Spending Accounts (FSAs) are all types of Medical Reimbursement Plans. However, each type has different benefits and requirements for employers and employees.

See our comparison chart here

How do I qualify for an HSA?

To open an HSA, you need a high-deductible health plan (HDHP). This can be an HDHP that you purchase on your own, or receive through your employer. The IRS defines what is considered an HDHP. In 2021, your plan deductible must be at least $1,400 for individual coverage or $2,800 for family coverage.

To summarize, to be eligible for an HSA:

  • You must be covered under a high-deductible health plan (HDHP)
  • You have no other health coverage except what is permitted by the IRS (see IRS Publication 969)
  • You are not enrolled in Medicare

How much can I contribute to my HSA?
You can make pre-tax contributions (or tax-deductible contributions, if not through an employer) in 2021 of up to $3,600/year if you have individual coverage, or up to $7,200/year if you have family coverage. People age 55 and older can contribute an extra $1,000 per year. You can add money to the account for the previous year’s contribution limit until the tax-filing deadline.

How can I use my HSA money?

You may spend the HSA money tax-free on out-of-pocket medical expenses, such as your deductible, co-payments for medical care and prescription drugs, or bills not covered by insurance such as vision and dental care. The IRS determines the types of medical expenses you can use tax-free with HSA funds. They are listed in IRS Publication 502.

Use our eligible expense tool to learn more

Unlike with a Flexible Spending Account (FSA), you don’t have to use HSA funds by the end of the year. Rather, HSA funds can grow tax-deferred in your HSA account for later use.

If you use HSA funds for non-medical expenses, you are required to pay taxes on the withdrawal, plus a 20% penalty before age 65.

How Do I Invest my HSA Money?
Many HSA administrators or banks will let you shift money into mutual funds and other investments after your HSA account balance reaches a certain level.

Can I Contribute to My HSA Account After Age 65?
You can keep your HSA account at any age, but you can no longer make new contributions to the account after you have signed up for Medicare Part A or Medicare Part B, which usually happens at age 65.

Do the HSA Tax Benefits Phase Out at Certain Income Levels
No. With an HSA, there are no income limits.

If I Set Up an HSA Through My Employer, What Happens if I Switch Jobs?
You can keep the money in your HSA account after you leave a job, similar to a 401(k). There is no requirement to spend it before you terminate employment.