The benefit of an HSA is that any money you choose to contribute is done before taxes, therefore it is tax-free. This means you could see significant savings by paying for your health care expenses using the money saved in this account, rather than paying straight out of your pocket. And, you control and own the money in your HSA, not your employer or insurance provider. However, in some cases, employers choose to contribute funds to their employees’ HSA as part of their benefits package. This tool is intended to help you budget for and save money on upcoming health care expenses.
Often health savings account options are coupled with the health plan you choose through your employer, but you may need to seek one out if you shop for a plan on your own.
About Health Savings Accounts
An HSA is typically available with a high deductible insurance plan (a plan that has a higher amount you need to pay out-of-pocket each year before your health insurer starts to pay for certain services) to help make expenses more affordable. You do not need to spend the funds allocated to your HSA in a specific timeframe, any money left in your account at the end of the calendar year rolls over and continues to accumulate. This type of account is also an effective retirement planning strategy because you can use the money saved in an HSA for nonmedical expenses without a penalty once you turn 65.
The medical expenses that qualify are determined by government regulations and include:
- Co-pays for medical expenses and drugs
- Doctor and hospital visits, including surgeries
- Prescription drugs (over-the-counter medications are not covered without a prescription)
- X-rays and lab tests
- Dental and orthodontia expenses
- Vision expenses
- Medical equipment, such as wheelchairs
This account is easy to use and will often come with a debit card to pay for health expenses on the spot with no additional paperwork. But, it’s always a good idea to keep your health care service receipts and payment notifications for reference.
Right now, there is a 20 percent penalty for using HSA funds for nonqualified medical expenses before age 65, so it’s important to make sure your expenses qualify to avoid any penalties.
Potential Changes to Health Savings Accounts
Likely, you are hearing about potential health care reforms as they make their way through the approval process. The proposed health care bill, titled American Health Care Act (AHCA), includes a variety of changes to the previous administration’s Affordable Care Act.
The expansion of HSAs is one of those changes. Here’s what you need to know about the proposed changes to HSAs:
- Starting in 2018, the maximum HSA contribution limit would increase from $3,400 for individuals and $6,750 for families to $6,550 for individuals and $13,100 for families.
- As a retirement savings option, the new bill would allow individuals (over age 55) to make a $1,000 supplemental contribution to his/ her spouse’s HSA (known as a catch-up contribution) beyond the maximum amount defined above at the end of the year. Previously, only the primary account holder was able to make a catch-up contribution.
- HSA withdrawals could be used to pay for qualified medical expenses incurred 60-days before the HSA was established.
- The bill would lower the penalty for nonqualified medical expenses from 20 percent to 10 percent.
- The bill would no longer allow consumers to roll over excess tax credit money into an HSA.
HSAs offer generous tax savings for people with high deductible health plans to use on out-of-pocket health care expenses. Contributing to an HSA allows you to save money and have more control and flexibility over where your health care dollars are spent.
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*Editor’s Note: On Friday, March 24, House leadership pulled the American Health Care Act (AHCA) from consideration on the floor of the U.S. House of Representatives. As a result, the scheduled vote on the AHCA did not take place and the Affordable Care Act remains the federal law that governs the nation’s health care system.