Would you have any money left after you pay for your health costs and all of your other expenses?
If you answered no to the above questions, you might want to participate in a health savings accounts (HSA).
Health savings accounts were created to help individuals save for future health expenses and control health care costs. Health savings accounts help you spend your health care dollars more wisely if you use your own money.
Health care costs are a huge problem in America. Unpaid medical bills are among the leading causes of bankruptcies in America. A serious illness or health problem can bankrupt anyone—even those who make a six-figure salary.
Today, we share some benefits of health savings accounts, and explain how they might help you save some money in the future.
What is a Health Savings Account?
Health savings accounts (HSAs) combine high deductible health insurance with a tax advantaged savings account. Basically, HSAs are like personal savings accounts specifically for healthcare costs. You can only use the money in them to pay for your deductibles or health care expenses.
Once you meet the deductible, the insurance starts paying for your health expenses. The remainder of the money in your savings account earns interest and is yours to keep. You—not your employer or insurance company—own and control the money in your health savings accounts.
There are four federal requirements to be eligible for HSAs:
- Individuals must be covered simultaneously by a qualified “high-deductible” health insurance policy (HDHP).
- The HSA participant cannot be covered by any other health insurance plan such as a spouse’s plan.
- The HSA participant must be under age 65.
- The HSA participant cannot be claimed as a dependent on someone else’s federal income tax return.
There are no income, employment, or other age limits in the federal law.
Health savings accounts continue to gain popularity as a health coverage savings option for employers and their employees. In 2013 enrollment in HSAs reach nearly 15.5 million, growing by almost 15 percent since 2012 and more than tripling in the past six years.
Despite the enrollment numbers, many individuals have misconceptions about the features and benefits of HSAs.
Health Savings Accounts Benefits You Might Find Surprising
Employee Benefit News shares seven HSA features that you may find surprising:
- After age 65, you can withdraw money from your HSA for any type of purchase (not just medical expenses) without penalty, similar to a traditional IRA.
- You can invest your HSA dollars.
- You can use HSA dollars to pay for things that aren’t covered by your insurance plan such as:
- Chiropractic services
- Travel costs for medical care
- Certain procedures like laser eye surgery
- You can make tax deductible contributions to your HSA until April 15 (tax deadline) for the previous year.
- You can pay now, cash in later. HSA members can hold onto their qualified health care expense receipts, and cash them in for a tax-free payout any time in the future.
- If you don’t use it, you won’t lose it, unlike many flexible spending accounts (FSAs).
- You can take your HSA dollars with you when leave your job.
Are Health Savings Accounts Right For You?
If you’re generally healthy and want to save for future health care expenses you might want to enroll in a heath savings account plan.
If you’re near retirement, a health savings account makes sense because the money in the HSA can be used to offset costs of your medical care after retirement.
However, if you might need expensive medical care in the short-term and wouldn’t be able to pay the high deductible, a HSA may not be your best option.
As with any financial decision there are pros and cons to health savings accounts. You must evaluate your unique circumstances to determine if an HSA is the right choice for you.