If you have a high-deductible health plan (HDHP), you also automatically have access to one of the best ways to pay for your current and future medical expenses: A health savings account (HSA), which lets you put away pretax dollars to pay for future healthcare costs.

Many employers who offer HDHPs also provide an HSA option, but you don't have to use the one your employer picks. Just like people who buy their own health insurance on the individual market, you can open your own HSA account and choose from the hundreds of plans offered by banks, credit unions, and other financial institutions.

Some of these may offer more generous interest rates and fewer fees than your employer's HSA. Some also offer options for investing your money in stocks or bond funds. Now, during open enrollment season, is a smart time to shop around for an HSA, whether you get your high-deductible insurance through work or buy it on your own.

More on managing healthcare costs

If you can afford to put money aside for healthcare costs, an HSA can turbocharge your savings. That's because they have a triple tax advantage: You fund the account with pretax dollars, the money grows tax-free, and if you spend the money on qualifying health costs, you'll never pay taxes on it. (There's no requirement to spend the money in any given year.) Because they aren't depleted by taxes, your healthcare dollars go further. 

And if you can afford to pay for current healthcare costs from regular savings, HSAs can be like a stealth 401(k). You can invest the money in stock and bond funds, and reap potentially greater savings over time. Once you reach 65, you can spend your HSA dollars on anything, not just medical expenses, without a penalty (although you will owe income tax).

HSA Basics

HSAs should not be confused with flexible spending accounts (FSAs). The latter must be set up by your employer, and the pretax money you put in them must be spent in the same calendar year that you saved it. You can't have an HSA and an FSA.

About 46 percent of Americans under 65 with private health insurance are enrolled in a high-deductible health plan (one with a deductible of at least $1,350 for an individual and $2,700 for a family), according to the National Center for Health Statistics, and thus are HSA-eligible.

And indeed, as HDHPs have become more prevalent in recent years, HSA accounts have become more popular. As of June there were 24 million HSA accounts holding $51 billion in assets, according to Devinir, an HSA consulting firm. That's double the number of accounts in 2010, when assets totaled $10 billion. 

But even as HSAs have grown in popularity, it's clear that many people aren't getting all the benefits out of them. In 2017 individuals were allowed to contribute up to $3,400 a year in an HSA (families could contribute $6,750), but just half of HSA owners put money in their account that year. And among those, contributions averaged $1,949, according to the Employee Benefit Research Institute. Only 13 percent contributed the maximum allowed.

How to Choose an HSA

HSAs aren't easy to shop for, says Leo Acheson, an associate director at the investment research firm Morningstar. "There are hundreds of options and a lot of very basic information you need to know to make an educated decision, which can be hard to find," says Acheson, who recently analyzed the top HSA providers. 

If you're considering opening an account, use these steps to guide you:

Figure out how you want to use the money. Which HSA is best for you depends on how you want to use the money. Most people use an HSA like a savings account to pay for near-term medical expenses. If that’s the case, like any bank account, fees and interest rates are going to be most important. But if you think you can stash money in the account long term to pay for healthcare costs down the road, you’ll want one that also offers a wide variety of investment options.  

Shop broadly. Hundreds of banks, credit unions, insurance companies, and other financial institutions offer HSAs, and each has its own policies and fees. You can use Devinir’s HSASearch tool to compare more than 500 providers with your company's HSA, if it has one. You can also check out Morningstar’s analysis of the top HSA providers to benchmark plans.

If you decide to use a different HSA than your employer's, make sure you don't lose out on an additional tax benefit. With an employer HSA, you also avoid payroll taxes, not just federal income taxes, on the money you put into the account. With an individual HSA, you make the contributions with after-tax money that's already been shrunk by payroll taxes and don't get the income tax break until you file your taxes. If you don't want to lose that employer contribution advantage, you can have two HSAs and periodically transfer the money from your employer HSA to your own.

Understand all the fees. There can be LOTS of fees. The most common include a charge to open or close an account, write checks, get a paper statement, and monthly maintenance. Some fees are trickier. For example, you could be charged if you contribute more than the maximum allowed, so make sure you monitor your contributions carefully. For 2019, an individual can contribute $3,500 and a family can put away $7,000. If you’re over 55, you can put in an additional $1,000. Some providers will waive fees if your account balance reaches a certain level. At HSA Bank, for example, the $2.50 a month fee for maintenance is waived if your daily balance is $5,000 or more.

Compare interest rates.  Like any checking or savings account these days, interest rates are pretty low. But some providers offer tiered interest rates, so interest increases as your balance grows. Lively, for example, pays 0.25 percent interest for balances below $2,500, but that rises to 0.35 percent for $5,000 to $15,000 and 0.60 percent for $15,000 or more.

Evaluate your investment options.  If you choose an HSA with investment options, check first to see whether there's a minimum. HSAs that offer investment options usually let you start investing after your account balance reaches $1,000. Be careful though; investing HSAs have different fees than savings-only accounts. And many of the mutual funds offered in HSA plans through employers tend to come with high fees. Be sure to understand both the account fees and the fees for underlying investments to figure out your true costs. Like any investment account, you should look for a varied menu of investments and funds with a solid performance record.

Factor in convenience. While most HSAs provide a debit card for you to pay your healthcare expenses, some HSAs also let you pay by paper check or online bill pay. Be sure you’re only using the money for qualified HSA expenses so you don’t have to reimburse your account. To help manage the money in your account, some HSAs let you use a smartphone app, and some offer a service that will automatically sweep excess funds into the investment options you've chosen.