The number of Health Savings Accounts has been constantly on the rise since these accounts were offered to the public. Both employers looking for ways to continue offering health insurance as a benefit to employees and people seeking their own individual plan have invested in Health Savings Accounts. Why would this one form of health insurance be appealing to both groups?
A Health Savings Account or an HSA is like a personal savings account with three very big differences. First, no matter how you invest the balance, the earnings are not taxable as long as you let the balance grow with tax-free earnings or you withdraw money to pay for healthcare that meets government criteria. You can spend the funds for your kid’s check-up at the dentist, your spouse’s medical massage therapy, or for your own acupuncture treatment. There’s actually a long list of health-related expenses that the federal government allows you to use HSA funds for and any money you don’t spend on health care can keep on growing tax-free to double as a retirement account.
A second big difference between an HSA and a regular savings account is that you can get a tax deduction for your savings. You can deposit up to $3,050 for individual plans or up to $6,150 for family plans and take a tax deduction for the entire amount even without itemizing deductions. It doesn’t matter whether you use the funds for qualified health care or build a retirement fund with it. The tax deduction is still available.
An HSA also differs from a regular savings account in how you can invest the balance. With an HSA, you may buy bonds, mutual funds or stocks if you prefer. Of course, you can also keep your entire HSA in a regular interest-bearing savings account.
Who Should Start an HSA?
The trade association America’s Health Insurance Plans revealed that more than 11.4 million Americans are covered by HSA-eligible health insurance plans. That’s an overall increase of 14 percent this year. The association also found that in the individual market, 2.4 million people got an HSA plan.
This year, preventive care services are required to be covered with no out-of-pocket costs. That has opened the door for many people to take advantage of high-deductible plans offering much lower premiums than typical co-pay insurance. Certain of these high-deductible plans allow the policyholder to open an HSA. The greater coverage provided with high-deductible plans now makes an HSA even more inviting. Lower premiums of high-deductible plans help individuals maintain health insurance while also helping employers continue to offer health insurance coverage as a benefit.
How Do Health Savings Accounts Work?
You can open an HSA as long as you have a qualified high-deductible health plan (HDHP). You won’t have a deductible on recommended preventive care services, like annual exams, vaccinations, checking for high blood pressure, etc. If you need other types of health care that aren’t covered, you can use funds from your HSA to pay for it. Experts recommend starting with a deductible you could cover until you have built up your HSA. With more HSA funds as a backup, you can safely move to health insurance with a higher deductible, get lower premiums and invest the savings back in your HSA.
HSA balances roll over year after year. You can’t lose HSA money by changing employers like you can lose flexible savings account funds that are tied to an employer. There is one exception, though. If you spend HSA money for something besides qualified health care, you face a penalty fee of 20 percent on the amount you withdrew and you have to pay taxes on the withdrawal.
This year, that penalty just increased from 10 percent and there was one other change in Health Savings Accounts. You can no longer use HSA funds to pay for OTC (over-the-counter) medications unless your doctor prescribes them.
With an HSA, the public can make wiser choices when it comes to their health. Health Savings Accounts can be a cost effective strategy to cut monthly premiums, turn health care expenses into tax deductions and get tax-free earnings.
By Wiley Long – President, HSA for America ( http://www.health–savings–accounts.com ) – The nation’s leading independent health insurance firm specializing in individual and family coverage that work with Health Savings Accounts.
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