6 Tips to Understand Your Health Savings Account (HSA)



Basics

First of all, the basics- What is an HSA? As per the Glossary provided on the Healthcare.gov website, an HSA is - "A type of savings account that lets you set aside money on a pre-tax basis to pay for qualified medical expenses. By using untaxed dollars in a Health Savings Account (HSA) to pay for deductibles, copayments, coinsurance, and some other expenses, you can lower your overall health care costs. An HSA can be used if and only if you have a High Deductible Health Plan (HDHP) — generally any health plan (including a Marketplace plan) with a deductible of at least $1,350 for an individual or $2,700 for a family. When you view plans in the Marketplace, you can see if they're "HSA-eligible."


Why do I need a Health Savings Account?


Because there are co-pays for everything from doctor appointments to ER visits and prescriptions, it is helpful to have a little extra money in savings to pay for these needs.

Your HSA can also get your money working for you by earning interest, basically in the same manner as a financial savings account. Additionally, you can save your HSA money exempt from income taxes. Your HSA is managed in the same way a 401(k) and other deductions that come out of your paycheck before income taxes. HSA funds roll over year to year if you don't spend them. Some health insurance companies offer HSAs for their high deductible plans. Check with your company HR for more details. You can also open an HSA through some banks and other financial institutions.


It can be hard to understand how to start an HSA, how to access the funds, and how the funds can be used. Sometimes it is easy to assume that this money may be deposited to an account that will eventually disappear, without you or your family having access to it. Here are a few key tips to help understand and to better manage the use of a health savings account.


Tip 1: How to Start an HSA?


Firstly, in order to start a Health Savings account, you have to have a qualifying, high-deductible health insurance plan. It is essential to know that the definition of a high-deductible health insurance plan changes annually. However, it generally would include a deductible that is more than the normal range for a health insurance plan. It is crucial to make sure that the official definition of a high-deductible health insurance plan is met by contacting your employer or health insurance company. If you are self-employed, some privately insured banks and credit unions are available to help with the setup of an HSA.


Tip 2: Gain General Access to Your HSA


Your HSA works like many other accounts. It could be considered similar to your 401(k), both in the deposit of money and the access to cash for investment. Additionally, it is similar to a will where you can name a beneficiary to the remaining funds after your passing. It is helpful to know that your money remains in an HSA throughout the years, rolling over from one year to the next if they have not been spent. While it may not acquire as much interest like bank accounts such as savings, CDs, and others, an HSA remains in your life as money available for your needs even if your medical expenses reduce.


Tip 3: How to Contribute to Your HSA?


The annual HSA contribution allowance changes from year to year, just as the definition of a high-deductible health insurance plan. For 2019, the limits are as follows:

  • A single person can contribute up to $3,500 per year.

  • A family can contribute up to $7,000 per year.


While the annual changes may only be small, it is essential to be prepared with the information from one year to the next. In comparison, the 2018 numbers were $3450 allowed by singles and $5900 for families. Another important factor is access to employer contribution assistance that comes from some companies.

If you have any questions at all about contribution matching, it is a good idea to ask the human resources department at your employer.


Tip 4: Health Savings Account Pay Deductions are Tax-Exempt


Based on the fact that an HSA is usually set up through your employer, with the money being regularly deducted from your paycheck, it works in the same way as your insurance premiums and 401(k) deposits. If you do not have your employer deducting from your paychecks, then the tax-exempt status of these funds will need to be calculated independently on your annual federal tax return. On your federal income taxes, you must deduct the amount that you contributed across the entire year. And then, withdrawals from your HSA for expenses are taken out tax-free.


Tip 5: How to Determine HSA qualifying Expenses?


Here are some examples of HSA qualifying expenses: prescription medicines, eyeglasses, office visit co-pays, chiropractors, dentists, orthodontists, over-the-counter medications such as aspirin and antacids, birth-control (over-the-counter or prescription), and laser eye surgery. Because there are many additional qualifying expenses, you may need to do some research on the HSA plan that you have acquired. Additionally, the procedures or treatment that you need can be obtained internationally while still qualifying for the use of HSA funds.


Tip 6: How to Access Your HSA after Losing Your Health Insurance or Job?


The most important thing to remember is that once you have money in your HSA, it is yours. You can continue to use it no matter what type of health insurance plan you have. All of the funds that have been deposited to your HSA are yours for medical expenses, the purchase of a private health insurance plan, or other qualifying expenses. Existing funds remain in the account and are available for appropriate withdraw as needed. If you are on unemployment or need COBRA between jobs, your HSA money is yours to use.


So, there is no reason to fear an HSA, whether you are starting one on your own or through your employer. There is no reason to worry about this money disappearing after your death, even if it was never used for medical expenses. You have no reason to fear the funds in an HSA just sitting there without the ability to access it for simple things like medical expenses and health insurance between jobs because the HSA itself remains yours throughout your life.


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