There are many factors to consider when deciding whether to open a Health Savings Account, or HSA.
Most HSA accounts require you to enroll in a High Deductible Health Plan (HDHP), which typically has lower premiums and higher deductibles than a traditional health insurance plan.
- If you are generally healthy and don’t access your healthcare benefits (because you are healthy – and lucky!) then a HDHP and HSA account may benefit you because you won’t owe the healthcare system any money aside from your monthly premiums.
- If you have more fragile health, or have lower tolerance for financial uncertainty, choosing a traditional health plan (instead of a HDHP) will cost you a higher monthly premium, but your deductible and other health-related costs (maximum out of pocket = max OOP) would be lower. Choosing a lower deductible plan typically means you are not eligible to open an HSA.
I will refer to these basic HSA abbreviations, definitions, and concepts throughout this post.
- Eligibility: if your health insurance plan is considered a High Deductible Health Plan (HDHP) you qualify for an HSA
- High Deductible Health Plan (HDHP): deductible of $1400 or more for individuals or $2800 for family
- Tax Effect*: triple benefit of 1) pre-tax deposits, 2) untaxed withdrawals (to pay for qualified medical expenses)+, 3) investment growth is tax free
- Portable: yours. If you leave a job where an HSA is a benefit, you take it with if you leave
- Contribution: IRS sets limits annually. For 2022 individual is $3,650, family is $7,300, catch-up contributions (age 55 or older) $1,000
- Flexibility: if your life changes, so can your HSA strategy
- Convenience: ability to cover some expenses your insurance doesn’t
- Administrative: save those receipts
*applies to Federal taxes. Check here to see how your state treats tax: https://hsaforamerica.com/state-income-tax/
* A listing of IRS qualified medical and dental expenses is here: https://www.irs.gov/pub/irs-pdf/p502.pdf
Make Your HSA Work For You
Funds saved in a Health Savings Account, or HSA, can be used throughout the year it is established, or anytime in the future (and we mean ANY time), making a HSA account a financial tool.
Search the term Health Savings Account (HSA) online and you’ll hit the mother lode of information on topics like tax ramifications and eligibility, as well as opinions, including what others think are the pros and cons of HSAs.
As with any financial instrument (it’s a savings account after all!) especially one associated with health care, there are many things to consider.
Two Ways to Use your HSA
There are generally two ways to use your HSA:
- To pay for current medical bills
- As a source of money for future healthcare costs
The good news is that you are not locked into a chosen strategy.
For example, if you decide to invest your contributions to save for your future healthcare costs in retirement**, but then find that you have an unexpected medical event in the present (even if that present is in 20 years and you are not yet retired), you may use your HSA dollars to cover those expenses.
As long as you save your receipts as proof of reimbursement to yourself or a health care provider, you can use the funds in your HSA for any healthcare-related expense.
** According to Fidelity Investments someone retiring in 2022 can expect to spend an average of $158,000 on health care expenses in their retirement
An HSA is the Single Best Investment Deal Available
If you are in a financial position to use your HSA as an investment vehicle, it is the single best investment deal currently available, even more so than the 401K your employer matches for you.
Here is the smokin’ hot deal:
- Tax free contributions, which are typically done by pre-tax direct deposit from your paycheck
- Once invested, any interest, dividends, and other growth is tax-free
- When using HSA funds to pay for eligible medical expenses, those withdrawals are untaxed
You Can Use Your HSA Money for Any Healthcare-Related Expense
Using your HSA as a tax-free savings account for present day healthcare costs has big benefits, as well.
Any healthcare claims that have been put toward your deductible or contribute to your max OOP can be paid for with your HSA dollars.
Here is a list of IRS-qualified medical and dental expenses. You can use your HSA dollars instead of drawing from your monthly household budget to pay for these healthcare-related expenses. This list includes everything from AA meetings to wax for your teen’s braces.
Healthcare.gov has several links to resources with additional details about insurance, including Health Savings Accounts, and is a great resource to help you determine if an HSA is the right option for you.
Amaze Health is here to empower you to become a savvy healthcare consumer. We are happy to help you understand your insurance options, use your insurance wisely, and advocate for you if you need to fight a healthcare-related charge or bill.
