Health savings accounts (HSA) are accounts in the United States into which an employee puts part of their salary before tax, and from which they pay medical bills, usually with a special debit card. They are one part of benefits administration. HSAs have two close relatives. A flexible spending account (FSA) works in a similar way, but most of its money must be spent within the year. A health reimbursement arrangement (HRA) is filled only by the employer.
The main attraction is tax. Money that goes into an HSA is not taxed as income. Money spent from it on medical care is not taxed either. As a general rule, an HSA is allowed only with a high-deductible health plan. This is a cheaper health plan in which the employee pays the first few thousand dollars of medical bills each year, before the insurance starts to pay. The HSA is meant to cover those first bills. Unused money stays in the account from year to year, and can even be invested.
How is the account run? A specialist administrator runs the accounts and the debit cards. It sells this service white-labelled, which means that a bank or a health insurer puts its own name on the card and the app, while the administrator runs everything behind them. The card is issued through a card issuing platform and runs on a card network, such as Visa or Mastercard.
Say a software tester in Phoenix, Arizona, chooses to put $150 a month from her salary into her HSA. Over a year, that is $1,800. If her income tax rate is 22%, she saves $396 in federal income tax. In March, she pays $120 at a dentist with her HSA card. The card network sends the payment for approval to the administrator. The administrator checks two things. First, it checks that the shop is a health-care provider, from a code that the card network attaches to every shop. Second, it checks that her balance is at least $120. Both checks pass, so the payment is approved in about two seconds, as described on the page on authorisation and settlement. If she had used the card at a restaurant, her administrator would have declined the payment. This shop check is required for FSA and HRA cards. For HSA cards, each administrator decides whether to use it.
India has no direct equivalent. The nearest Indian benefit is the income tax deduction for health insurance premiums, under the old tax regime. Employees choosing between American health plans often use benefits decision support to decide whether a high-deductible plan with an HSA suits them.