Health Savings Accounts (HSA’s) are more common these days since the Affordable Care Act is causing health insurance premiums to increase substantially. When used in conjunction with high deductible health insurance plans they can be a great way for people under age 65 to lower their tax bill, pay medical bills with pre-tax dollars, and possibly build up “savings” for future medical expenses.
Here’s how it works. High deductible health plans generally have lower monthly premiums, because the policyholder is obligated to pay the contracted insurance rate for medical expenses out of their own pocket (up to a pre-determined annual deductible). The good news is that you can combine this type of health plan with a HSA, which allows tax-deductible contributions up to a maximum limit each year. When you pay your medical bills from your HSA, you pay less, because you are using pre-tax money.
High deductible health plans usually have deductibles that are very similar to HSA contribution limits. This means that people who are generally healthy can contribute the maximum allowed every year while spending less than the deductible amount. The unspent portion of the HSA accumulate over time, and can be used for future medical expenses. In this way you can consider the HSA a “shadow IRA” or a supplemental retirement account.
Since *Qualified Medical Expenses can be paid from your HSA, it’s in your best interest to be a “good consumer”. My recent experience getting an MRI was mind boggling. The difference in cost between the first provider I called and the one I ended up choosing was $2,000; for the exact same procedure. Yes, you read that right - I saved $2,000 and it stayed in my HSA. It clearly pays to shop around!
Some additional advice. If you spend less than the contributed HSA amount ($6750 max family or $3350 single contribution) you can “save” the difference for future years. Most HSA accounts also offer investment options for dollar amounts in excess of cash requirements. Providers of HSA accounts vary, so compare fees and investment options, and choose low-cost mutual funds whenever possible. When all of these components are used wisely it is a powerful way to grow your HSA over time. Also, there are specific rules on HSA’s that relate to your age. To gain more info give us a call, we’re always happy to help.
*Qualified Medical Expenses = doctor fees, hospital bills, lab tests, etc. including long term care premiums, prescriptions, dental and vision care, and Medicare A, B and D premiums.