Health Savings Accounts (HSA)

A Health Savings Account (HSA) helps you save money on health care. By making you a part of the medical services decision process, HSAs are designed to help you manage medical expenses and reduce the continuing raising of health care expenses. Equally as important, the money you save remains part of your retirement account, even if you leave your present employer. You can also save the money in your account and grow your account through investment earnings. Funds in the account can grow tax-free through investment earnings, just like an IRA In short, if you don’t use all the money in your HSA for medical expenses, it can accumulate as tax-free savings for your retirement. One final benefit, HSAs can pay for many more procedures than were ever allowed before by government sponsored programs. Health Savings Accounts help you save money on unavoidable expenses and build investment savings for your retirement.

An HSA is a form of health insurance coverage that includes several parts:

  • A tax-exempt personal savings account to be used for qualified medical expenses.
  • A health plan with a high deductible health plan (HDHP) with a high deductible (e.g. $1,100 for self-only coverage and $2,200 for family coverage).
  • A health plan with out-of-pocket limitations (e.g. $5,600 for self-only coverage and $11,200 for family coverage.
  • Contribution limits are indexed year. Catch-up contributions are allowed for individuals 55 & older through Medicare.

Account funds are used to cover medical expenses before the plan deductible has been met. Unspent account balances accumulate and accrue interest from year-to-year. Unlike amounts in Flexible Spending Accounts that are forfeited if not used by the end of the year, unused funds remain available for use in later years. Once the health plan’s annual deductible has been met, coverage resembles conventional insurance, typically in the form of a preferred provider organization (PPO) with little-to-no cost sharing for in-network services, and limits on total out-of-pocket costs.

An HSA account is much like an Individual Retirement Account (IRA), except that deposits and qualified withdrawals are tax-exempt. Individuals and their employers may deposit money into the HSA up to an annual dollar limit, with extra catch-up contributions allowed for those ages 55 to 65. Account balances can be used to pay for a wide range of medical expenses — including some ordinarily not covered by insurance — as well as some insurance premiums. HSA funds also can be used to pay medical expenses of family members not covered by the high-deductible plan. After reaching age 65, you may use HSA funds to augment regular income by paying ordinary income tax on withdrawals for any non-medical expenses. Like IRAs, HSA funds can be invested in stocks, bonds, and mutual funds. Since you own the account, it is fully portable regardless of any job changes.

HSAs do not replace a normal or typical health insurance policy. They are designed as a supplement to a high-deductible health insurance policy. Because the HSA is tied to a high-deductible health insurance policy, you will “pay as you go” for medical care, using your tax-free HSA dollars, until you spend up to the deductible. Once you meet the deductible, the health insurance pays for most of your medical expenses for the rest of the year. You may choose your own doctor and level of care. By themselves, HSAs are savings vehicles — not insurance policies — so they don’t restrict your access to coverage or your choice of providers.

The HSA program has two parts: a high-deductible health plan (which usually costs less than other health plans) and a tax-advantaged, portable savings account for payment of current medical expenses which builds like a Medical IRA.

For more information about Health Savings Accounts or to discuss your specific business needs, please contact us using the form to the right.