Health Savings Accounts (HSA) Explained

Even when you have health insurance, getting care can still be expensive. Wish there was a way to take the sting out of your out-of-pocket costs?

There is. It’s called the Health Savings Account, and it’s a great way to pay for healthcare and save money at the same time.

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A health savings account is a special tax-advantaged bank account that lets you save money to pay for healthcare. You can use the money in an HSA to pay for almost anything related to healthcare, from prescription drugs to doctor visits to bandages.

What does “tax-advantaged” mean? It means that the money you deposit in an HSA doesn’t get taxed by the Federal government — which is like getting more in your paycheck. And withdrawals from the account for health expenses aren’t taxed, either.

HSAs Are Not Health Insurance Policies

It’s an important distinction: HSAs are bank accounts, not insurance policies.

To qualify for an HSA, you first enroll in a high deductible health plan, or HDHP. For a plan to be considered an HDHP, it has to have a deductible of at least $1,050 ($2,100 for family plans). It also has to have an out-of-pocket expense limit of $5,000 a year (or $10,000 for family coverage).

This is more expensive than many other plans, especially managed care. But high deductible plans have much lower premiums than most plans. And no other healthcare arrangement gives you the tax savings of having an HSA. Depending on how much you earn — and how much you spend on healthcare — using an HSA could be the most affordable way to get coverage.

If your employer has a “fringe benefits” plan in place, you can have deposits to your HSA account taken right out of your paycheck. This puts the money in your account before it is taxed. If your employer doesn’t have this option, you can make deposits and get credit for them when you file your Federal income taxes.

You and your employer can make contributions to your Health Savings Account. Many employers have switched to offering HSA contributions instead of paying for a benefits program. For employers, this can mean lower costs. For you, it means more control over your healthcare options. It also means having a plan that goes with you when you change jobs.

In any single year you can deposit up to the amount of your health plan’s deductible. Any amount that you don’t spend “rolls over” — stays in the account — for next year. As the amount you have saved increases, you can afford to increase your plan’s deductible. With an even higher deductible, you pay even lower premiums.

Enrolling In An HSA

If you think a Health Savings Account might be your best option, you’ll need to enroll in a high deductible health plan first. In some instances, you’ll find plans and savings accounts offered through the same company. Or you may get your plan through an insurance company and the account through a bank.

In either event, your first step is to talk to an insurance agent. They can find you a plan and an account. They’ll help you decide if enrolling in an HSA is a good idea for you.

To get connected with agents in your area, use our free quote service. Just fill out our simple form, and you’ll get quotes from multiple health insurance agents.