What Is an HSA or MSA and How Do They Differ?

An HSA (Health Savings Account) and an MSA (Medical Savings Account) are both tax-favored accounts for medical expenses, but they serve different people. When someone compares HSA vs MSA, the MSA side usually means one of two things: the Archer MSA, an older account that has been closed to new participants since 2007, or the Medicare Advantage MSA, a government-funded account tied to a specific type of Medicare plan. The HSA is the one most working-age adults will actually encounter, and starting in 2026 the pool of people who can open one is considerably larger than before.

The Three Accounts Side by Side

All three accounts exist to pay for medical care with pre-tax dollars, but almost every other feature differs.

An HSA is funded by you (or your employer on your behalf), requires a qualifying high-deductible health plan, and belongs to you permanently regardless of job changes. It is created under Section 223 of the Internal Revenue Code.¹
An Archer MSA is the predecessor to the HSA, created under Section 220. It was limited to self-employed individuals and employees of small businesses averaging 50 or fewer workers. New Archer MSAs cannot be opened after 2007, though existing account holders can keep using theirs.²
A Medicare Advantage MSA is a type of Medicare Part C plan. Medicare deposits money into the account each year; you do not contribute your own funds. It pairs a high-deductible Medicare Advantage policy with that Medicare-funded savings account.³

If you are working, shopping for individual coverage, or otherwise not yet on Medicare, the HSA is almost certainly the account in front of you. The Archer MSA effectively no longer exists for new savers, and the Medicare MSA is only relevant once you are eligible for Medicare and choose that particular flavor of Part C.

How an HSA Works

An HSA is a tax-exempt trust or custodial account you own outright. If you switch jobs, get laid off, or retire, the money stays with you. Balances roll over year to year with no deadline, and many custodians let you invest the funds in mutual funds once you hit a minimum balance.¹

The tax benefits work at three separate points. Contributions made through payroll under a cafeteria plan are excluded from gross income and generally exempt from Social Security and Medicare taxes; contributions you make on your own are deductible above the line, so you get the deduction whether or not you itemize. Interest, dividends, and capital gains inside the account are not taxed. And withdrawals for qualified medical expenses come out tax-free.⁴

A few states, including California and New Jersey, do not follow the federal treatment. If you live in one, your contributions and account earnings may still be taxed at the state level even though they are sheltered federally.

If you die and your spouse is the beneficiary, the HSA passes to them tax-free and they take over as account holder. If the beneficiary is anyone other than a spouse, the account loses its tax-exempt status and the balance is included in that person’s gross income for the year.¹

Who Qualifies to Contribute

To put money into an HSA, you must be covered by a qualifying high-deductible health plan (HDHP) on the first day of the month. You cannot be enrolled in Medicare, cannot be claimed as a dependent on someone else’s tax return, and cannot have other coverage that pays before the deductible is satisfied, with limited exceptions.⁴

For 2026, a standard HDHP must have an annual deductible of at least $1,700 for self-only coverage or $3,400 for family coverage, with out-of-pocket costs (excluding premiums) capped at $8,500 individual or $17,000 family.⁵

2026 Changes That Open the Door Wider

Starting January 1, 2026, the One Big Beautiful Bill Act significantly expands who can use an HSA. Any bronze-level or catastrophic health plan available through a marketplace exchange is treated as an HDHP, even if it does not meet the standard deductible or out-of-pocket thresholds. The plan does not have to be purchased through the exchange to qualify.⁶

Direct primary care arrangements are also compatible now. If you pay a monthly fee to a DPC practice, that no longer disqualifies you from contributing, and the DPC fees themselves are a qualified expense you can pay from HSA funds. And telehealth services before the deductible is met are permanently allowed for plan years beginning on or after January 1, 2025, without breaking HSA eligibility.⁶

The bronze and catastrophic change is the biggest practical shift. People on marketplace plans who previously could not open an HSA because their plan’s structure did not quite fit the HDHP definition can now contribute.

2026 Contribution Limits

You can contribute up to $4,400 for 2026 with self-only coverage or $8,750 with family coverage. If you are 55 or older and not yet on Medicare, you can add an extra $1,000 catch-up contribution.⁷ When both spouses are 55 or older, each must maintain a separate HSA to claim their own catch-up amount.⁴

Contributions for a given tax year are generally allowed until the federal tax filing deadline the following April. Employer payroll contributions count toward the same annual limit. Excess contributions left in the account past the filing deadline (including extensions) trigger a 6% excise tax each year they remain.

Withdrawals and the 20% Penalty

Qualified medical expenses are defined in IRS Publication 502 and cover the usual ground: doctor visits, prescriptions, dental, vision, mental health, over-the-counter medications, menstrual products, and, as of 2026, direct primary care fees.⁸⁶

Insurance premiums are generally not qualified, with four exceptions: COBRA continuation coverage, health coverage while receiving unemployment, long-term care insurance (within age-based limits), and Medicare premiums after age 65 (Medigap excluded).⁴

Take money out for anything else and it is added to your taxable income. If you are under 65 when you do it, you also owe a 20% additional tax on the withdrawal.⁴

Archer MSAs: Mostly a Historical Footnote

The Archer MSA was created under Section 220 for self-employed individuals and workers at small employers averaging 50 or fewer employees over the prior two calendar years. Congress closed the program to new participants after 2007. Account holders who were already active before that cutoff, or who joined through an MSA-participating small employer afterward, can continue to use and contribute to their accounts.²

For anyone eligible for both, the HSA has almost entirely replaced the Archer MSA. Contribution limits are lower, the eligibility pool is narrower, and there is no practical advantage over an HSA for someone starting fresh. An active Archer MSA can generally be rolled into an HSA without tax consequences.

Medicare Advantage MSAs: A Different Animal

A Medicare Advantage MSA is not a savings vehicle you fund yourself. It is a Medicare Part C plan that combines a high-deductible insurance policy with a savings account funded by Medicare. At the start of each calendar year, Medicare deposits a set amount into the account based on the plan you have chosen. You use that money to pay for medical care until you hit the plan’s deductible, and anything left over rolls into next year.³

These plans usually do not have a provider network, so you can see most doctors and hospitals that accept Medicare. The tradeoff is a high deductible you have to bridge on your own between the Medicare deposit and the point where insurance coverage begins.

Not everyone can enroll. You are generally ineligible if you have end-stage renal disease, are receiving hospice benefits, are on Medicaid, or already have coverage such as TRICARE or federal employee benefits that would cover part of the MSA plan’s deductible. Medicare MSA plans also do not include prescription drug coverage, so a separate Part D plan is needed for medications.

What Changes at Age 65

Age 65 is where the HSA and Medicare MSA worlds meet. Two things happen to an HSA at that point. The 20% penalty on non-medical withdrawals goes away, so the account behaves like a traditional retirement account for non-medical spending (you still owe ordinary income tax on those withdrawals). Qualified medical withdrawals remain tax-free at any age.⁴

Once you enroll in Medicare, though, your ability to contribute to an HSA ends. The contribution limit drops to zero starting with the first month of Medicare enrollment. This trips up people who delay their Medicare application and then get retroactive coverage: any HSA contributions made during the retroactive period become excess contributions.⁴ The money already in the account remains available to spend, and paying Medicare Part B, Part D, and Medicare Advantage premiums from HSA funds is a valid tax-free use.

If you go the Medicare MSA route, note that the account Medicare funds for you is entirely separate from any HSA you built up during your working years. The HSA balance stays yours, subject to the post-65 rules above; the Medicare MSA funds must be used for medical expenses.

Which One Applies to You

For nearly everyone comparing these accounts today, the answer is the HSA. Archer MSAs are closed to new participants, and Medicare MSAs are only in play if you are Medicare-eligible and specifically choose that Part C plan design. The 2026 expansion means that if you looked at HSA eligibility a year or two ago and did not qualify, particularly because you were on a bronze or catastrophic marketplace plan, it is worth checking again. The rule that kept you out may no longer apply.

1
Office of the Law Revision Counsel. 26 USC 223 – Health Savings Accounts
2
Office of the Law Revision Counsel. 26 USC 220 – Archer MSAs
3
Medicare. Medicare Medical Savings Account (MSA) Plans
4
Internal Revenue Service. Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans
5
Internal Revenue Service. IRS Notice 2026-05 – Expanded Availability of Health Savings Accounts Under the OBBBA
6
Internal Revenue Service. Treasury, IRS Provide Guidance on New Tax Benefits for Health Savings Account Participants Under the One Big Beautiful Bill
7
Internal Revenue Service. Revenue Procedure 2025-19 – 2026 HSA Contribution Limits
8
Internal Revenue Service. Publication 502, Medical and Dental Expenses