Let’s review why HSA’s exist and then at how they work. Then, we will show you how to take advantage of yours.
So, why do Health Savings Accounts exist?
Employers and individuals choose their healthcare and insurance companies from the metal tiers: Platinum, Gold, Silver, and Bronze.
However, there is a fifth plan category, the High Deductible Health Plan (HDHP). As the name suggests, an HDHP means you pay a more significant proportion of your healthcare expenses (your deductible), before your insurer pays the bills. The upside of HDHP plans is that you pay a much lower monthly premium with free preventative care included.
Why choose an HDHP? And how does an HSA play a part?
The people benefiting the most from HDHP’s are those with little need for medical services. If you have not exceeded your deductible in the past and do not expect to do so next year, you may be “over-insuring” and a HDHP can help prevent that from happening again.
Most HDHP plan members can enroll in an accompanying Health Savings Account (HSA).
If you are eligible, Open Enrollment or a Special Enrollment Period (SEP) is your opportunity to review your health insurance plan options. Even the plan that was right for you last year may not be the best this year.
What is a Health Savings Account?
An HSA is a personal savings account where you, or your employer, sets aside pre-tax funds to pay for healthcare services. You would use these funds to cover medical expenses until you reach your plan’s deductible. A single person may save up to $3600 or $7200 per family for the 2021 tax year in an HSA. And unlike in a Flexible Spending Account (FSA), you can carry forward a surplus balance from one year to the next and one insurance provider to another. Plus, from the age of 55 and over, you can save an additional tax-free “catch up contribution” amount of up to $1000 per year.
How can I use the savings?
HSA funds need to be spent on qualified medical expenses. You can use them to pay for deductibles, copayments, and coinsurance. Some dental, vision, and drug costs are also qualified expenses. (refer to your insurance Summary of Benefits documentation
If you choose a provider or are hit with a ‘surprise’ billing from an out-of-network provider, you can use your pre-tax dollars to pay the amount not covered by your plan.
Most plans pay interest, which adds to the value of your pre-tax dollar. A third consideration is that you have the advantage of cash in the bank in the event of having to meet large or unexpected bills. Providers will sometimes offer as much as a 30 percent discount for utilizing cash payment rather than insurance.
What happens when I turn 65?
The most important thing is to enroll in Medicare.
Your accumulated HSA funds are yours to spend on healthcare costs, but you may make no further contributions. The fund was to help finance your healthcare. Any money you spend on Medicare supplements or other qualified expenses will continue to be tax-free.
What should I do next?
HDHPs are offered through the federal exchange, state exchanges, private exchanges, and directly from insurance companies. Most exchanges offer online comparison sites. Contact a qualified, experienced health advisor. HSAs are available at most banks, credit unions, and other financial institutions. It will cost you some of your time but could save you thousands.