What is an HSA?

As I had mentioned in my 60 Second Update, this week will be for giving an introduction into HSAs, FSAs and HRAs.  Today’s post will cover what is an HSA, how do you qualify for an HSA account and how does an HSA work.

HSA stands for Health Savings Account and it is a great way to save money for medical expenses.  It is very similar to a traditional savings account you would open up at a bank; however there are a few advantages to an HSA than a traditional bank account.  HSA contributions are pre-taxed.  If you are on a group insurance plan through your employer contributions can be done through a payroll deduction. For those that are on an individual plan you can write off you contributions when you do your annual taxes.  Some banks will also allow you to invest you HSA account as well.
 
How do you qualify for an HSA account?  In order to be eligible to open an HSA account you must be enrolled in a High Deductible Health Plan (HDHP).  The IRS sets limits on what the minimum deductible and/or maximum out of pocket can be on specific plans.  Most insurance carriers will name a plan or categorize HDHP’s into a specific section so that they are easy to find.  One aspect to be cautioned about is that all HDHPs have no co-pays in their plan designs.  For someone who is unfamiliar with how HDHPs work it may cause some confusion thinking that their insurance is not “working.”

How do HSAs work?  Each year you are allowed to contribute new funds into your HSA account.  The current maximum contributions for 2017 are $3,400 for individuals and $6,700 for families.  Adults over the age of 55 can make and additional $1,000 “catch up” contribution as well.  As I stated earlier contributions can occur throughout the year and do not have to be done all at once. Also, unlike an FSA (which we will discuss tomorrow) your HSA balance rolls over year to year.
Your HSA funds then can be used for medical expenses.  This includes deductible payments, out of pocket expenses, co-pays and prescriptions.  Once you are over 65 and enrolled in Medicare, you are no longer able to contribute toward your HSA account however you can still use the money you have accumulated to pay for medical expenses.  For this reason, you will sometimes you will hear people talk about HSAs as another retirement vehicle.

As always before considering enrolling in a HDHP and opening up and HSA account I recommend discussing this option with an insurance expert and seeing if a HDHP is a good fit for you.  If you would like to learn more about HSAs, you can visit our website www.bbpadmin.com/ or reach out tot me directly. Be on the lookout for an introduction to FSAs tomorrow.