HSA for December 16, 2017

Are HSAs Right for Me?

Beautiful young woman, holding a piggy bank filled up with dollar bills, saving for health expensesHow to know if a Health Savings Account is the right choice for you.
There are a lot of options when it comes to health insurance these days. You can choose between indemnity plans, HMOs, preferred provider organizations (PPOs) and everything in between. You can get covered through your workplace or get coverage on your own – and include your family or just get an individual policy and cover your family some other way.

Health savings accounts, or HSAs, can be an important part of your family’s health insurance plan, if you meet certain criteria. Let’s talk a bit about what HSAs are, who is eligible to contribute, and then what kinds of people are in a good position to benefit from them. Once you digest this information, you should be able to make an informed decision that will benefit you and your family.

Health Savings Accounts: An Introduction to HSAs and HDHPs

Health savings accounts provide a tax-advantaged way to set money aside for anticipated health care expenditures. Contributions to HSAs are tax deductible, growth in them is tax deferred, and withdrawals are tax-free, provided you use the distribution proceeds to pay for qualified health care expenses.

Not everyone can use an HSA. To contribute, you must own a qualified high-deductible health plan, or HDHP. These are essentially catastrophic health plans which have deductibles set relatively high: $3,100 for individuals and $6,250 for family members. This means that you must pick up the first $3,100 in health care expenses for you and up to $6,250 for your whole family, before the HDHP plan starts to pay benefits.

Because of the higher deductible, these plans pay out relatively fewer claims than traditional plans. This helps keep premiums for these plans affordable.

The health savings account benefit is there to compensate you for the higher deductible, and make it easier for you to pay for any medical expenses you incur, up to the deductible amount.

A health insurance form explaining the benefits for specific loss or treatmentsUnlike flexible spending arrangements, there’s no “use it or lose it” provision in an HSA. Your contributions are free to accumulate for many years, or you can spend them on medical expenses – anything from a new pair of glasses to the deductible on quadruple bypass surgery, and everything in between – except for over-the-counter medication.

Other Eligibility Criteria
Congress has restricted the tax benefits of HSAs to those who do not have access to a health care plan at work, nor eligibility to join a spouse’s workplace plan. You also cannot have any other kind of major medical insurance coverage – though you can own a disability policy, a long-term care policy, or a “dread disease” policy without disrupting your eligibility to contribute.

Who Should Consider a HSA?
HSA plans, combined with high-deductible health plans, work well under the following circumstances:

  • You are a small-business owner, sole proprietor or independent contractor, and you don’t get coverage through a traditional workplace plan.
  • You and your family are in generally good health and don’t require routine, ongoing medical treatment.
  • You are able to adequately fund the HSA each year.
  • You are in a higher tax bracket, since the tax deduction is more valuable the higher your marginal income tax bracket.
  • You want to keep premiums low and you can afford to absorb the risk of a $3,100 or $6,250 medical expense, should something happen to your family.

HSAs don’t work as well for those who would struggle to fund the account each year, or for those with ongoing medical conditions that would eat up the deductible, but not much more than that.