A Health Savings Account (HSA) is a powerful financial tool that allows you to save money to cover medical expenses. With an HSA, you can invest and save for the future without being taxed on your account earnings.
The following questions will help you better understand how an HSA is an affordable health care solution for employers and employees. Contact us today to get expert advice about what coverage is right for you!
Yes, but the total of the employer’s and the employee’s contributions to the Health Savings Account must be within the limits.
Someone has to be enrolled in a High-Deductible Health Insurance Plan (HDHP) to open an HSA. The idea is to use the tax-free HSA dollars to pay for any health care costs incurred until the deductible is satisfied.
Yes, but taxes must then be paid on the money. In addition, if the money is used before age 65 for non-medical expenses, there is an additional 20 percent tax penalty.
If an employer offers a high-deductible insurance plan, the employee may have all money deposited into an HSA on a pretax basis. Otherwise, the HSA deposits must be paid out of pocket and then deducted on income taxes.
The money in an HSA can be used at any age, but contributions to the HSA must stop once someone enrolls in Medicare (either Part A or Part B).
The HSA can generally not be used to be the premiums for the HDHP. The only insurance premiums the money can go towards are:
The Affordable Care Act increased the tax penalty for withdrawal from an HSA for nonmedical expenses to 20 percent and prohibited tax-free withdrawals for nonprescription drugs (except insulin).
Unlike some retirement savings accounts, there are no income limits on Health Savings Account participation. Anyone can open an HSA if they have a qualified high-deductible medical policy and are not enrolled in Medicare.
The HSA money can be used for any out-of-pocket medical expenses, such as the deductible, co-payments for medical care and prescription drugs, or health care bills not covered by medical insurance, such as vision and dental care.
HSA administrators usually set up savings accounts that can be accessed with a debit card for medical expenses. However, some health savings account plans allow larger balances to be shifted into mutual funds and other investments.
The Internal Revenue Service sets the contribution limits for HSAs. In 2014, the maximum contribution is $3,300 a year for individual coverage or $6,550 for family coverage. People age 55 and older can save an additional $1,000 per year.
Yes, as long as you are covered under a high-deductible insurance policy you are allowed to start a health savings account, even if the money is not “income,” per se. You can use personal savings or investment dividends to contribute to your health savings account instead.
No, you must be covered under high-deductible insurance to be eligible for a health savings account.
No, the account can remain where it is and be accessed for qualified expenses regardless of where they are incurred.
The annual contribution limit for FSAs is $2,500, which is for an individual or family. The limits for an HSA are higher. So if offered a choice between an HSA and an FSA, it may make sense to switch to the HSA. Even if the health plan would have a higher deductible with the HSA, more pretax money can be set aside, the premium will undoubtedly be less and, if not used, the account can roll over into future years.
HSAs allow participants to decide how much money, up to IRS limits, to set aside for health care costs. The account holder decides how to spend the money and can shop around for care based on quality and cost. Depending on the plan design, an employer may contribute to the HSA account, but the money belongs to the employee. Any unused money each year can be rolled over (stays in your account) to the next year. The account contributions, and any interest or investment it earns, are tax-free.
Pressure to save money in a HSA might lead people to avoid seeking medical care when needed. In addition, people may have trouble finding good information about the cost and quality of medical care. People who are older or sicker may not be able to save as much as younger, healthier people. Lastly, money taken from an HSA for nonmedical expenses will be taxed and incur a penalty.
Similar to a 401(k), an HSA belongs to the account holder even after employment ends.
Health savings accounts are like personal or retirement savings accounts, but the money in them is set aside tax-free to pay for health care expenses. The HSA is owned and controlled by the account holder, not their employer or insurance company.
A Health Savings Account is like a regular savings account except that it allows you to save pre-tax income for health related purposes only. In order to qualify for a health savings account, you must already be covered under a high-deductible plan that will cover your medical costs if they are very expensive and you cannot pay them (ie. if you are involved in a traumatic accident and require a costly hospital stay. A high-deductible plan is used mainly for these type of catastrophic accidents as it does not cover the first few thousand dollars of medical expenses). A health savings account is beneficial as it allows the consumer to be in control of their own money and choose how to spend it, as opposed to letting the insurance company decide how to spend it.
Medical Savings Accounts (e.g., the Archer MSA) are very similar to HSAs. They are both used with HDHPs. The big difference is that any employer can offer an HDHP and HSA combination to their employees, whereas the MSAs were developed for those who are self-employed and employers with up to 50 employees.
The Internal Revenue Code stipulates that the expenses must be to alleviate or prevent a physical or mental condition or illness, including dental and vision care (basically the things typically covered by health care plans). The money cannot be used for health club dues, illegal treatments, over-the-counter items (except insulin) or surgeries for cosmetic purposes.
Both accounts are tax-advantaged, but an HSA is more “flexible.” The money in an HSA is the employee’s and is still available after changing jobs or retiring. It can rollover from year to year and does not have the use-it-or-lose-it requirement that an FSA has.
HSAs and high-deductible health plans were created as a way to help control healthcare costs. The idea is that people will spend their medical dollars more wisely if they are aware of the real costs and are paying for care with their own money.
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