Health care can be quite expensive today, especially if you need special tests, have a chronic illness or experience a serious sickness or injury. If your health plan carries a high deductible, your bills can be cumbersome. One way to help manage your expenses is to set up health savings accounts.
History
The United States government created health savings accounts, or HSAs, in 2003 to help people with high health insurance deductibles. These accounts allow you to set aside pre-tax dollars to use to cover medical expenses each year. The idea is that having a high-deductible insurance plan along with money saved specifically for medical costs will encourage you to make wise health care decisions. Since your deductible is high, you won’t be running to the doctor for unnecessary visits. And because you have a finite number of HSA dollars, you will think about how you want to spend them.
Opening an HSA
You can start an HSA if you are younger than 65 and have a high-deductible insurance plan. You must have an annual deductible of at least $1,200 for you or $2,500 for your family. If your employer opens your account, it will be fed with pre-tax dollars. If you start HSA plan with a bank or other institution, you deposit after-tax dollars but then deduct those taxes from your income tax filing. If you go through a bank, look for a no-fee HSA account.
Depositing the Money
You decide how much of your paycheck you want saved in the account. Your employer may choose to contribute some money as well. The federal government enforces contribution limits of a total $3,300 each year for individuals and $6,550 for families each year. If you are 55 or over, you can contribute an additional $1,000.
Deciding How to Use it
You decide when and how to use your HSA funds. You can use it to pay your deductible or any co-pays or other expenses your insurance policy doesn’t cover. You can also use it for prescription drugs.
What if You Don’t Use it all?
If you change jobs and still have money in the account, you take the money with you. If you still have money at the end of the year, it rolls over to the next. If you retire, you take your account with you.
What If You Need the Money for Something Else?
Since it's tax exempt, there are some rules that govern health savings accounts. If you withdraw money for something else before age 65, you will have to pay taxes on it as well as a 20 percent penalty. If you withdraw it for something other than medical expenses after you retire, you will have to pay taxes on it, but not a penalty.
If you have a high-deductible health insurance policy, it is certainly worth exploring whether a health savings account would be beneficial for you or your family. Start by speaking to human resources personnel at your place of employment to see whether your company offers HSAs. If it doesn’t, find out which banks, credit unions, insurance providers or other companies in your area offer them directly to the consumer.
