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No matter what stage of life you are in, paying for health care can be stressful and can potentially put a strain on your finances. If you are seeking better ways to manage your personal medical costs, getting a high deductible health plan with a health savings account (HSA) is something to consider.
What Is an HSA and How Does It Relate to a High Deductible Health Plan?
To be more in charge of your finances, you should learn about health savings accounts, sometimes called HSAs, and high deductible health plans (HDHP), which have lower monthly premiums than many plans by having higher deductibles (the amount you have to pay before your insurance plan will pay anything).
An HSA is a special type of savings account that allows you to put aside funds on a pre-tax basis so to cover certain medical expenses that qualify. You can only have an HSA if you also have an HDHP. Funds from your HSA can be used for copayments and deductibles, as well as some other qualified expenses.
How Do HSAs Work?
To have an HSA, you need an HSA-compatible HDHP. Once you have that, you can set up an HSA. When needed, you can withdraw from your HSA for expenses not covered by your HDHP.
HSAs primarily save you tax money. Deposited funds are not taxed, and healthcare withdrawals are also tax-free. Additionally, you can earn tax-free interest on your HSA investments.
Another benefit is that any remaining funds in your HSA at the end of the year roll over. Essentially, an HSA functions similar to a 401(k) for healthcare expenses.
You can use HSA funds for yourself, your spouse, and dependents. This means your entire family can benefit from having an HSA.
Is an HSA Right for You?
Deciding whether an HSA is right for you and your family can be a highly personal decision. Although it has many benefits, some may still not think it is the right fit for them. That said, an HSA can be a great option for anyone who has medical expenses. It is a flexible health savings option because the funds in your account are yours to withdraw or invest as you see fit. Not only that, but in addition to rolling over from year to year, these funds will remain yours whether you switch jobs or change your insurance.
What Are the Eligibility Requirements for an HSA?
To obtain an HSA, you first need to make sure that you are eligible. While HSAs are available to many, there are some things that can prevent you from qualifying for one. A prerequisite for getting an HSA is already being covered under an HDHP. As well as having one of these plans, you have to make sure that you are not covered by any other non-HDHP healthcare, like Medicare.
You also cannot have received any health care benefits from the Indian Health Service or the VA, which is not connected to a service-related disability, within three months prior. You cannot be enrolled in TRICARE or be able to be claimed as a dependent on someone else's tax returns.
How Much Should You Put in an HSA?
The amount you choose to invest in your HSA is entirely your decision. However, there are certain limits to consider. For the year 2023, the individual limit is $3,850, whereas the family limit is $7,750. If you have a large family or anticipate significant medical expenses, depositing a larger portion of your income into an HSA might prove advantageous. Similarly, if you have recurring medical expenses such as prescription drugs, maintaining a well-funded HSA can be beneficial.
How Do You Withdraw Funds From an HSA?
You can withdraw funds from your HSA at any time. However, keep in mind that withdrawing funds and using them for something other than health expense means that those funds can be taxed.
Once you have an HSA, you will be provided with an HSA debit card to pay for your medical costs. You can also use the card at ATMs to withdraw cash. Getting special checks to pay your medical bills is another possibility, but they may cost extra.
Final Words About HSAs and a High Deductible Health Plan
Managing your health-related finances can sometimes feel like a struggle, especially if you have lots of costs to deal with. On the upside, there are options such as an HSA and a high deductible health plan that can provide affordable coverage.