What is a Health Savings Account or HSA?
A Health Savings Account (HSA) is the latest financial vehicle for individuals and families to manage their health care. Your HSA pays for all qualified medical expenses below the annual deductible on your health insurance policy-such as doctor visits, prescriptions, and even some over-the-counter medications. You can also use your HSA to purchase long-term care insurance or pay your health insurance premiums during periods of unemployment. Every eligible U.S. individual or family should have a HSA.
What are some of the main benefits of an HSA?
- Choice — With a HSA, you and your family choose your own products and providers for the first few thousand dollars of your health care expenditures. Any money you don't spend in the current year is available the following year to use for health care or to save for retirement.
- Tax Savings — You and/or your employer receive a 100% "above the line" deduction from taxable income for contributions made to your HSA. Interest and dividends accrue tax free like an IRA. But even better than an IRA, you never pay income taxes on the money you take out of your HSA for qualified medical expenses, even after age 65.
- Lower Health Insurance Premiums — Since your HSA covers the first few thousand dollars of your health and wellness expenses, you or your employer are able to take advantage of a less-expensive higher-deductible health insurance policy. Sometimes employers pass this savings to their employees by making contributions to the employee's HSA.
- Convenience — Families like HSAs because they cover 100% of the health care expenses most people incur each year, like doctor visits and prescriptions, without any co-pays or annual deductibles to meet (up to the amount in your HSA).
- Recordkeeping — Extend HSA Manager™ helps you keep your records in order by tracking, reporting and confirming each HSA transaction and asking you to enter more detailed information in a confidential online environment.
How much money can I and/or my employer contribute each year to my HSA?
You and your employer may to contribute up to the amount of the annual deductible on your health insurance policy, subject to a cap of $2,650 for individuals and $5,250 for families. Individuals over age 55 can make extra $600 annual tax-deductible "catch up" contributions until age 65. All unspent amounts accumulate and earn interest tax-free.
How do I qualify to open a HSA?
In order to open a HSA, you must have a qualified high deductible health insurance policy (HDHP) with an annual deductible of $1,000-$5,100 for individuals or $2,000-$10,200 for families. This HDHP may be either a group policy from your employer or an individual/family policy that you obtain yourself.
Does my employer's group health insurance plan qualify me for a HSA?
Since HSAs became available on January 1, 2004, many employers are raising the deductible amounts on their group health insurance policies in order to allow their employees to qualify for a HSA. Check with your employer to see if your group plan qualifies you for a HSA. If it does not, ask your employer when they are planning to make the HSA option available.
What happens to my HSA if I leave my employer?
Your HSA is completely portable. All of the contributions made by you or your employer are yours to keep-even if you change employers, retire, or go into business for yourself. You must be covered by a qualified High Deductible Health Plan in order to keep making additional annual tax-deductible contributions to your HSA.
Why are HSAs better than IRAs, 401ks, or other tax-advantaged savings programs?
With other tax-advantaged savings programs such as IRAs or 401ks, individuals and employers receive a tax deduction for their contributions and then individuals pay income tax on their withdrawals, hopefully during retirement when in a lower tax bracket. With a HSA, individuals and employers receive a 100% tax deduction when they contribute and withdrawals are not taxed, at any age, as long as they are used for qualified medical expenses.
What if I don't have, or participate in, a group health insurance plan?
If you are not participating in a group health insurance plan, you can change your health insurance or purchase a new individual/family HSA-qualified health insurance policy.
Click here to learn about an HSA for individuals and families not covered by a group benefits plan.
What are Qualified Medical Expenses for a HSA?
Virtually any healthcare or medical expense traditionally covered in whole or part by a group benefit policy qualifies as an HSA expense-expenses like:
- Doctor visits
- Prescription drugs
- Chiropractic treatments
But unlike traditional health insurance coverage, you can also use your HSA to pay for:
- Certain over-the-counter medications (which often cost much less than their prescription equivalents)
- Dental Services, including orthodontics (braces) for you and your children
- Eyeglasses, contacts, and even LASIK surgery
- Weight-loss programs supervised by a medical professional
- Transportation to and from medical providers
In addition to these current healthcare expenses, your HSA provides an important safety cushion for your family. HSA funds may also be withdrawn tax-free to pay for:
- Health insurance premiums during periods of unemployment
- COBRA health insurance premiums
- Premiums for long-term care insurance-everyone should have long-term care insurance to protect from becoming a burden to their family should they become ill or during their old age