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Health Savings Accounts (HSAs): Triple Tax Savings for Healthcare

Health Savings Accounts (HSAs) let you save for medical expenses with triple tax advantages. All Covered California Bronze plans are now HSA-eligible, making it easier than ever to build tax-free healthcare savings.

New for 2026: All Bronze plans through Covered California are now HSA-eligible! Thanks to the H.R. 1 bill provisions, every Covered California Bronze plan qualifies as a High-Deductible Health Plan (HDHP), allowing you to open a Health Savings Account and enjoy triple tax advantages.

What is a Health Savings Account (HSA)?

A Health Savings Account (HSA) is a tax-advantaged savings account designed to help you pay for qualified medical expenses. Think of it as a personal healthcare fund that offers significant tax benefits while giving you full control over how and when you spend the money.

Your Money, Your Control

Unlike employer-controlled health benefits, an HSA belongs to you. The money is yours to keep, invest, and use for qualified medical expenses whenever you need it—now or decades from now.

Rolls Over Forever

Unlike Flexible Spending Accounts (FSAs) with "use it or lose it" rules, HSA funds never expire. Unused money rolls over year after year, accumulating for future medical expenses or retirement healthcare costs.

HSA vs FSA: The biggest difference is portability and rollover. HSAs are yours forever and roll over annually. FSAs are tied to your employer and typically have use-it-or-lose-it rules. For most people, HSAs offer far more flexibility and long-term savings potential.

Who Can Open an HSA?

To be eligible for an HSA, you must meet all of the following requirements:

Must Have

  • An HSA-eligible health plan (HDHP)
  • All Covered CA Bronze plans qualify
  • Covered CA Catastrophic plans qualify

Cannot Have

  • Medicare enrollment (Part A, B, or D)
  • Other non-HDHP health coverage
  • Dependent status on someone's tax return
  • TRICARE or VA benefits (in most cases)
Important: You cannot be covered by any other health plan that is not an HDHP. This includes a spouse's non-HDHP plan or a general-purpose FSA. Limited-purpose FSAs (dental/vision only) are allowed.

Covered California Bronze Plans & HSA Eligibility

All Covered California Bronze plans are now HSA-eligible. This major change came from the H.R. 1 bill (enacted July 2025), which classified all Covered California Bronze and Catastrophic plans as High-Deductible Health Plans (HDHPs).

Why This Matters

Many Californians switched to Bronze plans in 2026 to save on monthly premiums. Now, they can double their savings by also contributing to an HSA for tax benefits. This is especially valuable for:

  • Healthy individuals who don't use much healthcare
  • Self-employed workers who can deduct HSA contributions
  • Families building long-term healthcare savings
  • Anyone wanting to reduce their taxable income

Covered CA vs Direct Plans

Plan Type HSA Eligible? Notes
Covered CA Bronze Yes (all plans) All Bronze plans through Covered California qualify
Covered CA Catastrophic Yes Minimum coverage plans for under-30 or hardship exemption
Direct Bronze No Off-exchange plans do NOT qualify unless specifically labeled HDHP
Covered CA Silver/Gold/Platinum No Higher metal tiers don't meet HDHP deductible requirements
Critical Distinction: "Direct" or "off-exchange" Bronze plans purchased outside of Covered California do NOT automatically qualify for HSA. Only Covered California Bronze plans are guaranteed HSA-eligible under the H.R. 1 provisions.

HSA Contribution Limits

The IRS sets annual limits on how much you can contribute to your HSA. These limits include all contributions—from you, your employer, and family members.

Year Individual Coverage Family Coverage Catch-Up (55+)
2025 $4,300 $8,550 +$1,000
2026 $4,400 $8,750 +$1,000

Contribution Deadline

You have until April 15 of the following year to make HSA contributions for the prior tax year. For example, you can contribute to your 2026 HSA until April 15, 2027.

Catch-Up Contributions

If you're 55 or older, you can contribute an additional $1,000 per year. Both spouses can make catch-up contributions if they each have their own HSA.

Pro Tip: If you become HSA-eligible mid-year, you can still contribute up to the full annual limit using the "last-month rule"—as long as you remain HSA-eligible through December of the following year.

The Triple Tax Advantage

HSAs are often called the most tax-advantaged account available—even more so than 401(k)s or IRAs. Here's why:

Tax-Deductible Contributions

Contributions reduce your taxable income—saving you money on federal and state taxes.

Tax-Free Growth

Interest and investment gains grow completely tax-free—no annual taxes on earnings.

Tax-Free Withdrawals

Withdrawals for qualified medical expenses are completely tax-free—at any age.

How HSAs Compare

Feature HSA Traditional 401(k) Roth IRA
Tax-deductible contributions
Tax-free growth
Tax-free withdrawals *
Required distributions None At 73 None

*For qualified medical expenses. After age 65, any withdrawal is penalty-free (income tax applies for non-medical use).

Example: Annual Tax Savings

A California resident in the 22% federal + 9.3% state tax bracket contributing $4,400 to an HSA saves:

  • Federal tax savings: $968
  • State tax savings: $409
  • Total annual savings: $1,377

Qualified Medical Expenses

HSA funds can be used tax-free for a wide range of medical, dental, and vision expenses. Here are common qualified expenses:

Medical
  • Deductibles & copays
  • Coinsurance
  • Prescription medications
  • Doctor visits
  • Lab tests & X-rays
  • Mental health services
  • Physical therapy
Dental
  • Cleanings & exams
  • Fillings & crowns
  • Root canals
  • Braces & orthodontia
  • Dentures
  • Dental surgery
Vision
  • Eye exams
  • Prescription glasses
  • Contact lenses
  • Contact lens solution
  • LASIK surgery
  • Reading glasses

New for 2026: Direct Primary Care

Starting in 2026, you can use HSA funds for direct primary care membership fees:
  • Individual: Up to $150/month
  • Family: Up to $300/month

What's NOT Covered

  • Cosmetic procedures
  • Gym memberships (usually)
  • Over-the-counter vitamins (unless prescribed)
  • Health club dues
  • Most insurance premiums*
  • Teeth whitening
  • Non-prescription sunglasses
  • General wellness products

*Exceptions: COBRA premiums, health coverage while receiving unemployment, long-term care insurance, and Medicare premiums (Parts A, B, D) after age 65 ARE eligible.

How to Open an HSA

Opening an HSA is straightforward. You can open one through a bank, credit union, or brokerage—independent of your health insurance.

Step-by-Step

Ensure you have an HSA-eligible health plan (any Covered California Bronze or Catastrophic plan qualifies). You cannot be enrolled in Medicare or claimed as a dependent.

Compare providers based on:

  • Fees: Monthly maintenance fees, transaction fees
  • Interest rates: What you earn on cash balances
  • Investment options: Mutual funds, ETFs, stocks
  • Debit card: For easy healthcare payments
  • Mobile app: For tracking and managing

Popular providers include Fidelity (no fees, excellent investments), HSA Bank, Lively, and HealthEquity.

Apply online with your basic personal information. You'll need to provide your Social Security number and confirm you have an HSA-eligible health plan. Most accounts open within minutes.

Contribute via:

  • Direct transfer: Link your bank account
  • Payroll deduction: Pre-tax contributions (if employer offers)
  • One-time deposits: Fund as needed
  • Automatic contributions: Set recurring transfers
Investment Tip: Only 21% of HSA holders invest their funds, missing out on significant growth potential. Consider investing HSA funds you won't need short-term—especially for retirement healthcare costs.

Using Your HSA

Using your HSA is simple. Most providers offer multiple ways to pay for qualified expenses.

HSA Debit Card

Most HSAs provide a debit card. Swipe at the pharmacy, doctor's office, or anywhere that accepts card payments for medical expenses.

Reimbursement

Pay out-of-pocket, then reimburse yourself from your HSA. There's no time limit—save receipts and reimburse years later for tax-free growth.

After Age 65

Once you turn 65, your HSA becomes even more flexible:

  • Qualified medical expenses: Still completely tax-free
  • Medicare premiums: Parts A, B, and D premiums can be paid with HSA funds tax-free
  • Any other expense: No 20% penalty—just ordinary income tax (like a traditional IRA)

Note: Medigap (Medicare Supplement) premiums are NOT HSA-eligible, even after 65.

Keep Your Receipts! Save all receipts for qualified medical expenses. You can reimburse yourself years later, allowing your HSA to grow tax-free in the meantime.

Frequently Asked Questions

Yes! Your HSA is yours forever, regardless of employment changes. You can continue to use existing funds for qualified expenses. However, you can only contribute to your HSA while enrolled in an HSA-eligible health plan.

If you're under 65, non-qualified withdrawals are subject to income tax plus a 20% penalty. After age 65, the penalty is waived—you'll only pay ordinary income tax (similar to a traditional IRA withdrawal).

Yes, anyone can contribute to your HSA—spouse, family members, or even employers. However, the total contributions from all sources cannot exceed the annual limit. Note that spouses must have their own separate HSAs (you cannot have a joint HSA).

No! Unlike 401(k)s and traditional IRAs, HSAs have no required minimum distributions. Your money can grow tax-free for as long as you want—even for your heirs.

The H.R. 1 bill (enacted July 2025) included provisions that classified all Bronze and Catastrophic plans sold through state ACA exchanges like Covered California as High-Deductible Health Plans (HDHPs). This was designed to expand access to tax-advantaged healthcare savings for marketplace enrollees.

You can have an HSA alongside a limited-purpose FSA (for dental and vision only) or a dependent care FSA. However, you cannot have a general-purpose health FSA while contributing to an HSA—the FSA would disqualify you.

Yes, you can make a once-in-a-lifetime transfer from an IRA to your HSA (called a qualified HSA funding distribution). The transfer counts toward your annual contribution limit and must be completed within 60 days. You must remain HSA-eligible for 12 months following the transfer.

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