Health Savings Accounts

Health Savings Accounts

With all of the recent changes to healthcare coverage and insurance plans over the past couple of years, most people have been affected by the new rules and regulations in one way or another. For many, increased monthly premiums and co-pay amounts or

Published Monday, June 1, 2015

With all of the recent changes to healthcare coverage and insurance plans over the past couple of years, most people have been affected by the new rules and regulations in one way or another. For many, increased monthly premiums and co-pay amounts or high annual deductibles are the result of these new healthcare guidelines.

While there certainly are options from which to choose, a lot of individuals and families have still encountered limitations due to increased costs. In order to pay a lower monthly premium for health insurance, sometimes the only choice is to enroll in a special plan called a high-deductible health plan, or HDHP. This type of plan has a much higher deductible that must be met each year before the plan kicks in to pay the majority, if not all, of healthcare costs. On a positive note, though, these plans also have some of the lowest monthly premiums available.

Another upside to a HDHP is the eligibility for a health savings account (HSA). HSAs are similar to personal savings accounts but the money must be used for qualified healthcare expenses to avoid penalties. Not only are these accounts ideal for offsetting the cost of out-of-pocket medical expenses, they also have excellent tax benefits associated with them. For example, contributions made to HSAs are tax-deductible. Withdrawals are tax-free as long as they are used for qualified medical expenses. In addition, any interest or other earnings on the funds in the account are also tax-free.

Tax advantages aren’t the only benefit of HSAs. All funds that are in the account at the end of the year automatically roll over to the next year. Since the money in the account belongs to the account holder, the funds will continue to earn interest and are always available for future medical expenses even if the insurance plan changes.

HSAs are extremely convenient, too. Usually a debit card is issued, so as expenses arise, they can be automatically deducted from the account instead of paying up front and then submitting claims and waiting to be reimbursed. It is important to keep all receipts to show proof that the funds withdrawn were made for qualified medical expenses. Taxes and penalties incur for those withdrawals from an HSA that are not qualified.

According to the IRS, here are some examples of qualified medical expenses that can be paid with funds from an HSA:

 

  • Acupuncture
  • Alcoholism treatment
  • Ambulance services
  • Chiropractors
  • Eye exams, glasses, eye surgery, and contact lens supplies
  • Dental treatments
  • Diagnostic services
  • Doctor’s fees
  • Fertility services
  • Guide dogs
  • Hearing aids and batteries
  • Insulin
  • Lab fees
  • Prescription medication
  • Nursing services
  • Surgery
  • Psychiatric care
  • Telephone equipment for visually or hearing impaired
  • Therapy or counseling
  • Wheelchairs
  • X-rays

 

It’s simple to set up an HSA as long as qualifying guidelines are met. The main eligibility requirement is simply to be enrolled in a HDHP. Contribution limits also apply. HSAs can be opened at almost any bank or credit union. The process typically includes filling out an application and depositing funds into the new account.

Overall, HSAs are a great way to save money each month on high insurance premiums. They also provide long-term savings with their special tax advantages and other benefits. For more information about HSAs, click on the following links.

http://www.irs.gov/uac/About-Publication-502

http://www.investopedia.com/articles/personal-finance/090814/pros-and-cons-health-savings-account-hsa.asp

http://www.everydayhealth.com/news/things-you-didnt-know-your-hsa-could-do/

http://healthinsurance.about.com/od/healthsavingsaccounts/a/HSAs_basics.htm

https://www.ehealthinsurance.com/indiana-health-insurance/health-plans/hsa

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