Buying medical insurance can cost a fortune depending upon the individual needs of the health insurance buyer. One of the ways to try and save some money is by opening up a health savings account (HSA). In case you have not heard of an HSA, here you go!
What is a Health Savings Account?
A health savings account is a savings account that is funded with dollars taken out of your income before taxes. The goal of an HSA is to pay for any major medical expenses that are not covered by your current insurance plan with pre-tax dollars that you save for yourself.
How Does a Health Savings Account Work?
An HSA gives the accountholder a greater degree of flexibility as to what to do with their own health savings funds. These funds can be invested. They can be deposited into safe accounts that seek modest growth or even placed in investment assets like a mutual fund for investors seeking growth.
My company offers two different medical insurance plans and the high deductible plan comes with an HSA. If we choose that plan, our company has our HSA funds automatically placed into a Chase savings account and we even receive a debit card to use for our medical expenses.
The best part in my opinion was that, according to the insurance professional that spoke with my coworkers and me, an HSA is your own account and goes with you even if you switch jobs or retire. Even if you can no longer contribute to an HSA, the funds you saved can be used for your own medical expenses until they are completely used up. So for example I even use these funds for dental and vision expenses like buying cheap contact lenses online.
What are the Requirements for a Health Savings Account?
In order to be eligible for a health savings account, you have to be enrolled in a high deductible health insurance plan. Enrollees also cannot be covered under another health insurance plan. The advantage of high deductible plans is that their lower premiums for plan participants. The obvious disadvantage is that you will need enough cash on hand to cover the high deductible.
Who Can Make Deposits to a Health Savings Account?
Employers and employees can both make deposits into a health savings account. Contributions by employers and employees are made with pre-tax dollars. Employees are under no obligation to contribute to a health savings account and can stop doing so at any time.
In my company, my employer contributes absolutely nothing to our HSA’s, so make sure to find out before you sign up.
What is the Contribution Limit to a Health Savings Account Currently?
Single employees can contribute up to $3,050 in 2011. A family can contribute up to $6,050 in 2011. There is a catch-up provision that allows anyone that is 55 or older to contribute an additional $1,000 annually.
What are the Tax Advantages of a Health Savings Account?
Even the best high interest savings account won’t make you as much as you can save in taxes with a HSA. Contributions to your health savings account reduce your amount of taxable income. Earnings are able to grow income tax free. The accountholder will not even be subject to taxes if they get a return on their HSA investments as long as all of the money is used for qualified medical expenses.
I personally chose the regular co-pay plan at my current job instead of the HSA only because the difference in premiums didn’t make up for the difference in deductibles. $37 a paycheck seemed like a fair price to pay to avoid an extra few thousand in deductibles if I did get into a major accident. Normally the difference in premiums is much higher, so an HSA is a fantastic choice. Also even though we can use this HSA money for dental expenses Im still going to compare dental insurance plans to keep those costs down as much as possible.
Do you have an HSA? What do you think? We really like this option. In other investment news we’re trying to decide to use Stash Invest vs Acorns investing apps. We’re enjoying having multiple buckets of savings and investments. The diversification makes us feel safer.
By the way I’ve been looking at alternatives to the traditional health insurance system since I’m not a fan of it. There are “cost sharing” services where the members share the costs. Anyway I’m comparing Liberty Healthshare to Medishare cost numbers. I’ll let you know what I conclude in a full review.