A health savings account (HSA) is a tax deferred medical savings account available to individuals currently enrolled in a high deductible health insurance plan. There are many benefits of health savings accounts that you can take advantage of. The money contributed to the account is deposited pre-tax, and can be withdrawn tax free if used for qualified medical expenses. Withdrawals for non-medical related expenses are taxed very similar to an IRA, in that they can be withdrawn after a certain age without penalty.
Main Benefits Of Health Savings Accounts
Health Savings Accounts are becoming popular because they offer several benefits to both consumers and employers. For employers, HSAs are viewed as less expensive plans because they are linked to high deductible policies, and since employees have to share more costs, they are less likely to use medical services they do not need.
For the employee, there are significant savings that can be had by using this type of health insurance. First, if you are relatively healthy and do not typically use much medical care, these plans have low up-front costs compared to other health insurance plans. Furthermore, employers still generally cover things like physicals by depositing a set amount each year into the HSA on behalf of the employee to cover these types of care.
Second, all money in the HSA is the property of the employee regardless of whether the employee or the employer contributed the funds. Unlike an FSA (Flexible Spending Account), the money in an Health Savings Account that you do not use for medical care rolls over every year to add to more available funds that you have in the future, and the funds continue to grow in your account.
Another one of the benefits of Health Savings Accounts is that all withdrawals made for qualifying medical expenses are tax free. So, no taxes were paid to deposit the money in your Health Savings Account, and no taxes need to be paid when you withdrawal money for your medical care from the HSA.
Finally, HSAs still have out-of-pocket maximums that you can reach in medical care as well. So, if there was an expensive medical issue or procedure that you need, you would simply pay until your out-of-pocket maximum is reached. Then, you would be covered by your health insurance.
Potential Drawbacks Of Health Savings Accounts
The main drawback of the HSA plan is that it puts more responsibility for medical care on the patient. As such, the HSA plans are usually more suited towards healthy young adults who don’t need too much medical care.
Second, individuals can choose to invest their assets in their Health Savings Account in stocks or mutual funds which could ultimately lose value or swing wildly with the market at inopportune times when you may need the money the most. You could end up with less money in your HSA than when you started investing in it and less than you need to cover the cost of care. You would then have to pay out of pocket in that instance.
Do you have a Health Savings Account? What are some of the benefits that you have seen and taken advantage of?
Thanks for pointing out one of the real – but rarely mentioned – aspects of the health savings account. Yeah, you can invest your contributions in stocks and mutual funds, but does that really make sense? How long do you thing you’ll go before there’s a serious likelihood you’ll incur a major medical expense? I can accept the risk of taking on more of my health care expenses. But I can’t accept the risk that I won’t have enough money to pay for medical expenses in the event I have to undergo an expensive procedure or treatment.
This sounds like a good option if you aren’t likely to incur any major medical expenses. Still it seems it’s a bit too risky if you do happen to need something expensive. I’m glad I’m Canadian and don’t need to make this kind of decision. I’d probably go with something like this and then later regret it.
I switched over to a HDHP during last winter’s open enrollment, and I’ve been putting the amount I *would* have paid for premiums, plus some, into the HSA. And my employer contributes a small amount every paycheck, too! I have a chronic illness that is manageable with (thankfully inexpensive) daily medication, so those costs are paid with tax-free funds. I will have the funds necessary to pay my full deductible soon (by the end of the year) in case of catastrophic illness or injury, and after that the extra I save will go toward a planned medical expense in the next couple of years. I’m very happy with my HDHP!
I love having an HSA. I rarely go to the doctor so my contributions every month go towards savings. When I do need money for medical, I pay out of pocket and let the HSA money continue to grow. There is no limit on when you can use the money in your HSA, so I’m going to let it grow tax-free until I have medical expenses later and then use it then, tax-free.
It’s good to have a health savings accounts so that you’ll have something to use in case of health related financial emergencies. Just make sure that you have everything else provided for because using this would mean your money will surely be tied.
I have an HSA account and high-deductible insurance for the first time. I bought an insurance plan that covered me 100% after I hit my deductible. After a year of contributing (along with my employer) into my HSA, I had enough in my HSA to cover my annual deductible if I ever needed it.
Turns out, I had to get knee surgery last week. My HSA will cover the deductible… and my insurance will pick up the rest. And since my HSA contributions come directly out of my paycheck, I feel like I didn’t pay a dime for this surgery.
The best part: if I incur any more medical costs, anything as small as a cold to as big as a heart transplant, before the end of this calendar year, it’s covered 100% by my insurance company… and all the while, I can start building my HSA back up for next year.
I think I can get used to this HSA thing.
Health Savings Accounts were created in 2003 to help you save for future medical expenses on a tax-free basis. That means you don’t have to pay taxes on the money you contribute to an HSA, you get to deduct the amounts from your taxable income when you file your income tax return.