Health savings accounts (HSA) are unique, tax-advantaged accounts that can be used to pay for healthcare expenses. When an HSA combines with a high-deductible health plan (HDHP), employees see savings and tax advantages above and beyond what traditional health plans offer. So what do employees need to know to take advantage of these plans?
First and foremost, in order to open and enjoy the benefits of contributing to an HSA the insured must enroll in a qualifying HDHP. High-deductible health plans are generally among the lowest cost plans in a health insurance carrier’s product portfolio. Business owners and employees can often take advantage of paying lower premiums while at the same time using tax-advantaged* HSA funds to pay for out-of-pocket medical expenses such as co-pays, deductibles and more. In addition to using HSA monies for health insurance co-pays and deductibles, the funds can also be used for acupuncture, chiropractor, contact lenses, dental and vision services, prescriptions, therapy, and much more. A complete list of covered items can be found on the Internal Revenue Service’s (IRS) website.
HSAs also offer pre-tax savings.* The money that is deposited in an HSA is tax deductible, up to the IRS established annual contribution limits. Deposits in the HSA grow tax-free and any money withdrawn from the HSA used to pay for qualified medical expenses is income-tax-free. These unique tax advantage features make the HSA is unlike any other savings vehicle currently available to taxpayers.
The money deposited in the HSA belongs to the account holder. Those looking to sign up for an HSA shouldn’t be scared of the “use it or lose it terminology”. Unspent balances at the end of the year remain there until spent, and all deposits into an HSA account are immediately vested. An employee who initiates the HSA through their employer is also not in a “use it or lose it” scenario if a career change is made. The HSA is fully portable and stays with the employee.
The HSA puts the insured in charge of how they want to handle their out of pocket medical expenses. The insured decides how much to contribute on annual basis, any amount up to the IRS annual limits. They also decide if they want to use the HSA savings for qualified medical expenses. It’s also up to the insured which bank they want to administer the HSA or they can decide to invest their HSA savings in mutual funds giving them even greater potential for long-term growth.
For employers and employees looking to save money HDHP and HSAs are a great option to consider.
*State tax treatment of HSAs varies. Consult with your CPA or state’s department of revenue to learn more.