The increasing cost of medical insurance premiums today makes a Health Savings Account worth considering as an option. Many people are not very familiar with them, but they are becoming a more popular option both within employee benefit plans and for individuals.
Advantages of an HSA
A Health Savings Account is all about saving on taxes while providing health insurance benefits.
The funds you put into this account are tax deductible and not subject to federal income tax when you deposit them. Contributions made your employer also may be excluded from your income for tax purposes.
HSAs are handled through a third party trustee and you can use the money in the plan to pay for any type of medical expenses that is normally deductible on your taxes. And, any unused balance left in the account rolls over from year to year so it can be used in future years.
Using a Health Savings Account means you can save money for the high cost of a deductible and get tax-preferred treatment for that set aside money. These accounts are owned by the individual, not a company, and can be used to pay for various medical expenses that meet the IRS’ Qualified Medical Expense criteria—and all without any tax liability.
How do HSAs Work?
Of course, while these accounts feel like personal savings accounts, the money in them can only be used on health care expenses. In combination with the HSA savings portion, you purchase a high deductible medical insurance plan. The money contributed to the Health Savings Account helps to offset your out-of-pocket medical expenses until you reach your deductible and your insurance coverage kicks in.
Where Can You Open an HSA?
You must work through a bank or another financial institution. Sometimes, employers can offer HSA accounts as an employee benefit. Qualifications for this plan require that you are under the age of 65 and that you currently have a high-deductible health (HDHP) plan.
As it sounds, an HDHP medical plan is one that has a very high annual deductible. Your spouse must also be enrolled in a high-deductible plan. For that matter, the high-deductible plan must be your only coverage, not counting secondary forms of insurance, like dental, vision, disability and long-term care.
How Much Money Can You Contribute?
The IRS sets this amount annually. In 2015, it is $3,350 for an individual and $6,650 for a family plan. One thing to note is that over the counter (OTC) medications are not covered. Individuals 55 and over can add an additional $1,000 to the plan annually.
Many believe that HSAs are an important part of health care reform, and that they can help people to reduce the growing costs of health care, while also increasing efficiency of care. They are also said to encourage the practice of saving for future medical expenses, ensuring that patients receive important care without obstacles.
More information on HSA plan requirements is available from the IRS or from any HSA provider.