What is an HSA and how does it work?

Complete Guide to Health Savings Accounts (HSAs)

Why This Question Matters for Colorado and Utah Residents

Healthcare costs are rising across Colorado and Utah—average family health coverage premiums in our region reached $25,572 in 2024, with employee deductibles as high as $4,991. Many employers are turning to High-Deductible Health Plans (HDHPs) paired with Health Savings Accounts (HSAs) to help offset these costs. Understanding HSAs is crucial if you want to make the most of your employee benefits and avoid unnecessary out-of-pocket expenses.

• Tax Savings: HSAs let you contribute pre-tax income, reducing your taxable income in states like Colorado and Utah.
• Control Over Healthcare Spending: Funds in your HSA can be used for a wide range of qualified medical, dental, and vision expenses—often for services not fully covered by insurance.
• Portability and Rollover: Unlike Flexible Spending Accounts (FSAs), your HSA money rolls over year to year and follows you if you change jobs—a valuable benefit for our region's mobile, growing workforce.

What Most People Get Wrong

Many people believe anyone can open an HSA, but you must be actively enrolled in an eligible HDHP with minimum deductibles set by the IRS (in 2024, $1,600 for single/$3,200 for families). Some overlook the paperwork or IRS documentation needed if audited, and others assume employer contributions are automatic—when, in Colorado, only about 41% of employers contribute to their employees’ HSAs.

Another common mistake is missing out on the investment growth potential of HSAs. Many simply let funds sit in cash, unaware that HSAs can often be invested for long-term growth, similar to retirement accounts.

The Complete Picture

A Health Savings Account is a personal savings account with three big tax advantages: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. To be eligible, you must participate in an HDHP, which many Colorado and Utah employers now offer due to rising plan costs (in Northern Colorado, 29% of employers offer HDHPs with HSA access). In 2024, individuals can contribute up to $4,150 and families up to $8,300—plus an extra $1,000 if you’re 55 or older. Employers can also contribute, but this varies by company.

HSAs can cover costs ranging from doctor visits and prescriptions to eye exams, dental treatments, mental health care, and even some over-the-counter products. In our area, many employers fund part of the deductible to encourage participation—one Fort Collins tech firm saw turnover drop by 41% after adding a $500 employer HSA contribution to their plan. All unused funds roll over year to year and remain yours for life, even if you leave your job or retire.

Making the Right Decision for Colorado and Utah Residents

Question 1: Is My Current Health Plan HSA-Eligible and Does It Fit My Budget?

Make sure your health plan is a qualified HDHP before opening an HSA. Review the annual deductible, monthly premium, and out-of-pocket maximum—and ask your employer about any HSA contributions or wellness incentives.

• Compare your HDHP deductible to average regional deductibles ($1,787 for single, $4,991 for family in CO).
• Factor in your family’s typical medical expenses—are you likely to spend enough to benefit from tax savings?

Question 2: How Can I Maximize My HSA Contributions and Growth?

Set a monthly contribution—even a small amount adds up over time. Ask your employer if they contribute (about 41% do in Northern Colorado), and consult HR or a benefits advisor to ensure you’re using all eligible tax strategies. Many HSA providers offer investment options once your balance reaches a threshold (commonly $1,000 or $2,000), so consider setting some funds aside to grow for future medical costs—even in retirement.

Question 3: Am I Keeping Good Records and Planning Ahead for Taxes?

Track all HSA-eligible expenses and withdrawals. Save receipts and use your provider’s digital tools, since the IRS may request documentation in an audit. In Colorado and Utah, check state tax rules (CO excludes HSA contributions from state tax, but check for updates in your city or county). Planning ahead ensures you don’t lose out on the full benefit of your HSA.