There are many ways to get health insurance and a wide variety of plans to consider before making a choice. While many people may overlook a health savings account (HSA) because of some misconceptions, they may be just what you and your family need.
About an HSA
An HSA serves two purposes: it helps you save for medical bills, and it helps save for retirement. Other HSA benefits include having tax-free money when used for medical expenses, and it provides coverage for many things that many health plans do not.Before buying an HSA, you must get a high-deductible health plan (HDHP). It will have a minimum $1,600 deductible for an individual and $3,200 for a family. Your employer might offer these plans, or some banks will offer them. The deductible is higher than traditional health plans, which means you will pay more out-of-pocket costs, but it also means you have lower premiums.
Tax Benefits
Any money contributed to an HSA plan is tax-deductible—up to the contribution limits. Like other retirement accounts, you pay taxes when you withdraw the money in retirement. Money from the account can be used at any time for medical purposes without a penalty, but withdrawals for other things will be penalized until you are 65.HSAs have a triple tax benefit. HealthEquity says that your contributions are tax-deductible, the money grows tax-free, and money withdrawn for medical expenses is also tax-free.
Money Must Be Used by the End of the Year
Money in an HSA health insurance plan does not disappear at the end of the year. In this way, it is unlike a flexible spending account (FSA). The money in an HSA continues to build interest while money is in the account. You can earn more interest by investing money within the account in mutual funds.Even if you were to leave an employer, you can keep your health savings account. You cannot do this with an FSA. You can also change health plans or retire, and the money in the account is still yours. Also, Wellesley says there is no vesting requirement; once in your account, the money is there to use.
Only Employees Can Get an HSA
Although some employers offer HSA insurance, you can get your account through a bank or other financial institution. If you have a choice, Kiplinger mentions that it is usually better to get one through your employer because they may contribute to your account. Instead of providing matching amounts, employers often contribute either $500 or $1,000 and may pay any fees associated with the account.An HSA Is Only for Bigger Medical Expenses
The money in an HSA is not limited to paying for large medical expenses. It can be applied to any qualified medical expense. Fidelity says that qualified expenses include costs that affect the proper functioning of the human body, including prevention or treatment. Here are some of the categories listed by Fidelity: home care, hospital services, lab fees, diagnostic services, prescribed medications, nursing home, dental treatments, psychiatric care, birth control pills, chiropractor, surgery, qualified long-term care services, and many more.Many health insurance policies will not cover some of the above services. An HSA covers several things most health plans do not, including travel expenses to get medical treatments (even hotels and meals while there), Consolidated Omnibus Budget Reconciliation Act (COBRA) premiums—while unemployed, family planning, and more. Unless prescribed by a doctor, it does not cover weight loss programs or nutritional supplements.
An HSA Cannot Be Used for Family Members
When you have an HSA, you can use the money for any family member. The only time there is a problem is when a spouse is not a legal spouse. Optum says you can also use the funds for any eligible tax dependents.Not Anyone Can Get an HSA
Most anyone who is working can open a health savings account. The Internal Revenue Service (IRS) says there are four qualifications to determine eligibility:- Having a qualified high deductible health plan (HDHP)
- Cannot be enrolled in Medicare
- Cannot have any other health insurance (if your spouse has coverage, you must not be included in the plan)
- Cannot be a dependent on another person’s tax return.
Interest Rates Are Low
Interest rates can be low if you leave your money in the savings account. By investing the money in the account, higher interest rates are available. The money grows tax-free until you withdraw it—except for funds used for medical purposes.Unfortunately, most people do not take advantage of the investment opportunity. People who do invest find that their money grows much faster. It can provide an advantage to build your funds for future health needs since the average couple will spend about $315,000 in health costs once they reach 65.
Money Cannot Be Used After Getting Medicare
Indeed, you cannot make any more contributions once you are on Medicare, but you can withdraw money still in the account. Some people continue to work past 65 and delay getting Medicare so they can continue to make contributions. It can be beneficial if your employer makes contributions to your account.
Kiplinger advises that if you use this strategy, you must enroll in Medicare eight months before you lose coverage from your employer. It is essential because if you enroll after turning 65, Medicare coverage takes effect six months before you enroll and you could face penalties.
An HSA insurance plan can provide you with tax breaks that enable you to save a lot of money on medical costs. Compare prices and fees (some companies offer a no fee HSA) before you buy to ensure you get the coverage you and your family need because they vary between companies.
The Epoch Times copyright © 2024. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
