What is a Health Savings Account
What is a Health Savings Account (HSA)?
Health Savings Accounts (HSAs) are accounts that let you set aside money to pay for medical expenses. You can open an account through your employer, if your health insurance is considered a High-Deductible Health Plan (HDHP). HSAs allow you to deposit money on a pre-tax basis and then spend the funds on qualified medical purchases as needed.
How does it work?
With high-deductible plans you might have lower premiums than traditional insurance plans, but you are also responsible for more up-front costs. Let’s say your family’s deductible is $4500; that means you might have to pay $4500 before your insurance will start to pay its portion.
HSAs can protect you from having to suddenly come up with what might be large sums of money. With an HSA, your money is waiting in your account and can be spent by using what looks like a regular credit card (or checks). And if there’s money left after the deductible is met, you can use your HSA funds to pay for additional medical expenses beyond that.
The money going into the HSA is yours. Money coming out isn’t taxed when it’s used for qualified medical expenses.
What’s a pre-tax basis?
A pre-tax basis means that you don’t pay taxes on contributions to the HSA. This can be a great benefit, and one that many people take advantage of. Let’s say your income is $42,000/year and you contribute $3,000/year to your HSA. When it comes time to pay income taxes, you’ll only be taxed on $39,000, which may reduce your tax responsibility.
What are qualified medical expenses?
The IRS (Internal Revenue Service) sets the rules for what you can pay for with HSA funds. Please check with your tax professional if you have specific areas you’re concerned about. Some acceptable HSA expenses might include:
- Prescription medications
- Prescription supplies (insulin needles, wheelchairs)
- Prescription glasses
- Required dental procedures
What else do I need to know about HSAs?
The IRS limits the amount of money you can contribute to your HSA. For 2019, the individual limit is $3500 and for a family, the cap is $7000. If those funds are not used, they’re still yours. They roll over from year to year.
For other questions, or to learn if an HSA is right for you, contact one of our banking professionals.