Health Savings Accounts

Is a Health Savings Account (HSA) right for you? They are becoming increasingly more popular for individuals, as well as for employers. An HSA will allow you to save up for medical expenses (or let your employer to it for you!) so that, if a time of crisis ever does come, you will be easily prepared to meet the deductible. There are other advantages to a Health Savings Account, as well as certain limits and restrictions. The team here at has put together this guide to help you decide if an HSA is right for you.

What is a Health Savings Account?

An HSA is a specialized type of savings account that allows you and/or your employer to put back money every month, which can then be used to pay for your insurance or health care plan deductibles. (This is slightly different from a Medical Savings Account, as explained below.) This type of savings account was created specifically to encourage people to take on high-deductible insurance plans.

There are actually several advantages to having a high-deductible insurance plan. Probably the biggest advantage is that you have a low monthly premium cost, which makes your health care more affordable. Having an HSA also makes it easier to afford major procedures (such as surgery) that require a large initial contribution on your part.

How is This Different from a Medical Savings Account?

There are a few major differences. For one thing, you will own the funds in your HSA, yet it is not tax deductible (both of these points differ from a Medical Savings Account). An HSA also provides the advantage that your contributions “roll over” every year, i.e. what you don’t spend one year, will automatically transfer to your account for the following year.

Another difference is that Medical Savings Accounts are widely available, while Medical Savings Accounts are by and large being phased out. This is a positive move, as HSAs typically provide more benefits than MSAs.

How Health Savings Accounts Work

An HSA builds up over time because of the money you or your employer put into it. Usually, HSAs are partially or wholly funded by an employer, but they can also be used by self-employed persons.

When the time comes to pay for your deductible, you simply take the money out of your account. You will not have to pay taxes on these funds if you use them for qualified medical expenses, but if you should take the money out for any non-qualified expense, you will have to pay the appropriate taxes.

What counts as a qualified expense has to be determined by your health care provider. One thing that is never covered is over-the-counter medication–unless your doctor specifically prescribes it to you. Your qualified expenses should be reported each year to the IRS.

  1. Who Qualifies for a Health Savings Account?
  2. In order to be eligible for an HSA, you must:
  3. Be under 64 years of age.
  4. Not be listed on anyone’s tax return as a dependent.
  5. Not have any other type of medical coverage, except for the following types:
  6. Disability
  7. Vision
  8. Long Term
  9. Dental
  10. Specific Injury Insurance

What are The Advantages of an HSA?

  1. Your health savings account will “roll over” every year, which means that any money left over from one year, will stay in your account for the next year (and years after that, should circumstances permit).
  2. All unspent funds acquire interest, just like in a regular savings account.
  3. Once deposited in your account, your health care savings are not taxed as assets. Keep in mind however that the money will be taxed, should you withdraw it to pay for non-qualified expenses.
  4. The savings provided by and HSA may allow you to pick an insurance policy or health care plan with a lower monthly premium.
  5. The savings provided by an HSA might allow you to participate in a better insurance or health care plan or program, than you might normally be able to afford.
  6. You can take your HSA with you if you change jobs, and do so without any type of penalty.
  7. Once you reach age 64, you can withdraw funds from your account for any reason, without being taxed.

What are the Disadvantages of a Health Savings Account?

There are some associated disadvantages with an HSA–although not all of them are necessarily disadvantages, when you put them in the proper context.

  1. You must purchase an insurance policy or health care plan that has a high deductible (although see the advantages to this listed above).
  2. Qualifying health plans may include limitations on eligibility.
  3. Health plans may include limitations on what counts as a qualified medical expense.
  4. Deductibles for major expenses may be difficult to pay for if you have only been involved with your HSA for a short period of time.

As you can see, a Health Savings Account offers flexibility, assists you in paying for major medical expenses, and can be carried from one job to the next, among other benefits. Using a Health Savings Account is just one more way you can better provide yourself with a sound financial future.

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