Introduction
Healthcare costs in India are rising steadily: consultation fees, diagnostics, medicines, outpatient care - much of this still comes from your pocket (so-called out-of-pocket expenses). Insurance often addresses hospitalisation, but many recurring costs evade coverage.
Enter the idea of a health savings account: a dedicated savings instrument for medical needs, paired with tax advantages, that smooths your health spending over time. In global markets, health savings accounts (HSAs) have gained traction. But can this concept succeed in India?
What Is a Health Savings Account?
A health savings account is a specially designated savings account where you deposit money (perhaps pre-tax or tax-advantaged) to use for medical expenses over time. The core idea: you accumulate a medical fund in advance, pay for many health costs out of it, and possibly enjoy tax benefits on contributions or withdrawals.
In India, the concept is still in its infancy. Some banks or fintechs are piloting medical-savings style products.
How Do Health Savings Accounts Work?
Here's the typical flow in countries where HSAs are mature (adapted to the Indian context):
| Step | What Happens |
| 1. Contribution/deposit | You deposit a monthly or annual amount into the account. This may be pre- or post-tax depending on tax rules. |
| 2. Interest/growth/investment | The balance may earn interest or be investable in funds or instruments. |
| 3. Withdrawals for medical costs | You can withdraw funds tax-free (if rules allow) to pay for “qualified medical expenses” - e.g., consultation, diagnostics, medicines, hospitalisation co-pays. |
| 4. Rollover / carry forward | Unused amounts carry forward year after year - no “use it or lose it.” |
| 5. Penalties or taxation (if misused) | If you withdraw for non-medical purposes, there may be tax penalties. |
So, how do health savings accounts work in practice? They act like a cushion: whenever you need to see a specialist, run tests, or buy medicines, you draw from your HSA. Over time, you build an emergency medical corpus.
Example: Suppose you deposit ₹1,000 a month. Over a year, you accumulate ₹12,000 + interest. When you see a doctor and incur ₹1,500 in tests, you draw from this. The leftover stays and continues growing.
In jurisdictions with mature HSA frameworks, these accounts are coupled with high-deductible health insurance (you pay up to a threshold, then insurance kicks in), so you use your savings for smaller costs and insurance for catastrophic ones.
Different Types of Health Savings Accounts Around the World
Globally, there are several models or variants of health savings accounts. Some are pure savings, others are hybrid. Key types:
Classic HSA (U.S.)
· You must have a High-Deductible Health Plan (HDHP).
· Contributions are tax-deductible; interest grows tax-free; withdrawals for qualified medical expenses are tax-free.
· Unused funds roll over indefinitely.
· After age 65, non-medical withdrawals are tax-only (no penalty).
· This is the archetype model. (See HSA rules in the U.S.)Medical Savings Accounts (Singapore / China / South Africa variants)
· Singapore’s Medisave is a mandatory part of CPF (Central Provident Fund), where a portion of salary goes into a Medisave for health needs.
· China has health-savings elements in some schemes.
· South Africa has medical savings accounts often linked with health insurance for day-to-day medical costs.Hybrid HSA-Insurance Combo
· Some markets allow you to combine a dedicated health savings account with a standard hospitalisation insurance plan. The savings cover out-of-pocket and outpatient costs; insurance covers bigger events.Employer-Provided HSAs / group HSAs
· Some firms contribute to employee health-savings accounts (like an employer match). The accounts are managed by banks or health custodians.Government-mandated or tax-incentivised schemes
· Where governments encourage or mandate contributions (via tax benefits or matching) to health savings accounts for citizens.
These different types of health savings accounts vary by who funds them, tax treatment, rollover rules, and what expenses qualify.
Benefits of a Health Savings Account
When structured well, health savings accounts offer several advantages. Let’s break them down in India’s possible future context.
Financial Flexibility
- You control the money: decide when and how to use it.
- Covers outpatient, diagnostics, medicines - costs often not in insurance policies.
- Smooths out health spending - instead of scrambling for funds at the last minute.
- Since unused balance rolls over, you gradually build a buffer.
Long-Term Wealth Creation
- With interest or investment returns, the balance can grow.
- Over the years, this has become a kind of emergency corpus for health.
- Because of compounding, early deposit years yield bigger gains.
Other benefits include:
· Reduced reliance on high-interest borrowing during medical emergencies.
· Encourages health consciousness (if people “see” their savings tied to health).
· In some models, it can be used as a tax-efficient savings vehicle.
What Can Health Savings Accounts Be Used For?
This is critical: what can health savings accounts be used for? Use depends on jurisdiction, but generally:
· Doctor consultation & specialist fees
· Diagnostic tests, scans, and lab investigations
· Medicines, prescriptions, and sometimes over-the-counter (if rules allow)
· Preventive care, screenings, vaccinations
· Dental, vision, hearing, physiotherapy (if qualified)
· Hospitalisation costs (co-pay, deductible)
· Medical travel or procedure-related costs, in some cases
· Some plans may permit usage for family members.
In India’s future HSA model, these categories are likely. The clarity around “qualified medical expenses” is crucial - there must be a well-defined list to prevent misuse.
Best Health Savings Accounts: Global Benchmarks
To understand what works, let’s look at top models in other markets (benchmarks):
· U.S. HSA model: Often held up as the gold standard. Triple tax benefit, rollover, portability, investment options.
· Singapore’s Medisave / Medisave + MediShield: Compulsory saving, integrated with public health schemes.
· South Africa’s medical savings accounts: As a complement to health insurance for day-to-day medical costs.
· Some private health insurers and fintechs globally are launching hybrid HSA + wellness accounts with rewards and investment overlays.
The best health savings accounts globally combine:
1. Tax incentives (deduction, tax-free growth, tax-free withdrawal)
2. Rollover / no expiry
3. Flexibility in usage
4. Low fees and transparency
5. Investment opportunities for surplus funds
6. Easy interface, integration with insurers/hospitals
These benchmarks teach that HSAs must be simple, low-cost, and embedded.
Lessons for India
What can India learn from these global models?
· Tax infrastructure is essential: Without favourable tax treatment, adoption will be low.
· Partnership with insurers & hospitals: To define “qualified expenses” and enable seamless debit/credit.
· Low-cost administrative model: Lower fees will encourage uptake.
· Clear regulation: To prevent misuse, set guardrails.
· Education & awareness: Many Indians don’t plan for outpatient costs or diagnostics.
· Gradual rollout: Start with a pilot in metros or corporate schemes.
· Link to existing banking/fintech systems to scale quickly.
A KPMG white paper had previously explored the feasibility of HSAs for India, analysing U.S. and Singapore models for learning. Also, media commentary notes HSAs can complement insurance by handling “low-cost, high-frequency” medical needs better than hospitalisation plans alone. Thus, India should consider HSAs as augmenting (not replacing) health insurance.
Will HSAs Work in India?
Yes - but with caveats.
Strengths & enablers:
· Many Indians already pay for outpatient costs out-of-pocket. HSAs provide structure.· Rising smartphone and fintech penetration mean digital account buildouts are possible.
· Government willingness (if policy pushes) can assist via tax incentives.
· Corporate adoption via employee health benefits.
Challenges:
· Tax policy: Currently, India does not have a framework for health-savings account deductions.· Liquidity concerns: Some might withdraw funds for non-medical reasons unless safeguards exist.
· Behavioural barrier: People may not prioritise depositing for medical needs.
· Administration & oversight: Defining allowed uses, auditing, and preventing misuse.
· Integration with insurance: Insurance companies may seereduced premiums or may resist.
· Adoption scale: If only a few banks offer, uptake remains low.
Overall, HSAs in India could work best if introduced as pilot programs or in the employer / corporate wellness space first, then expanded with regulatory backing.
Link Between HSAs and Health Insurance in India
HSAs and health insurance should not be viewed as substitutes - rather, as complementary:
· Health insurance handles catastrophic risk hospitalisation, major surgeries).
· HSA handles everyday medical costs (consultations, labs, medicines).
· Combined, they cover more fully and reduce reliance on out-of-pocket spend.
Scenario: You deposit ₹8,000/year to your HSA. Over time, it accumulates. You also hold a general hospitalisation plan. For diagnostic tests, you draw from HSA; for major surgery or a hospital stay, insurance steps in. This integration requires backend linking (e.g., insurers verifying your HSA balance or enabling reimbursements).
In India, insurance players could partner with banks / fintechs to offer a “Health Savings + Insurance bundle” product.
Conclusion
Health savings accounts represent a promising way to empower individuals financially for health-related costs. Globally, mature HSA models prove that tax-advantaged, rollover-friendly medical savings work well, especially when paired with insurance. In India, the concept is in its infancy, but the structural need is strong.
For HSAs to succeed in India, several pieces must align: tax incentives, regulatory support, careful product design (allowed expense list, penalties, rollover rules), and education. If done right, HSAs can reduce the burden of everyday medical costs, smooth expenditure cycles, and reinforce healthcare resilience for millions of Indians.
FAQ
1. Can I open a health savings account in India today?
As of now, there is no mainstream, nationwide regulatory product labelled “health savings account” with full tax benefits in India. Some banks or fintechs may pilot savings accounts with medical features/incentives, but a full-fledged HSA with recognised tax advantage is not generally available.
2. What expenses can HSAs cover?
Typically: doctor consults, lab tests, diagnostic scans, outpatient treatments, prescription medicines, preventive checkups, dental/vision/physio (if defined), co-pays, and hospital deductibles. The precise list depends on product rules.
3. Are there tax benefits for HSAs in India?
Currently, India does not have a formal tax regime for HSAs akin to U.S. HSAs. For a health savings account to attract adoption, new tax provisions would likely be required (deductibility on deposit, tax-free growth, tax-free medical withdrawals). Until then, these would be ordinary savings from post-tax income.
4. How is an HSA different from health insurance?
· An HSA is a savings/investment account to pay medical expenses over time.
· Health insurance is a contract that reimburses or pays for medical treatment, especially significant ones.
· HSAs cover small, frequent expenses; insurance covers high-cost, low-frequency events.
· HSAs allow accumulation, rollover, and self-direction; insurance depends on policy terms, premiums, waiting, and exclusions.
