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 first need to have an HSA-compatible HDHP. You then can set up an HSA, after which, when needed, you can withdraw from your HSA funds for expenses that your HDHP does not cover.
Primarily, HSAs work by saving you tax money. Any money that you deposit into your HSA will not be taxed, and any money that is withdrawn for healthcare purposes will also not be taxed. Along with that, you can also earn tax-free interest on money that you invest in your HSA.
Another benefit of an HSA is that any funds that you have in your account at the end of the calendar year will roll over and remain in your account. In many ways, an HSA is like a 401(k) for your healthcare expenses.
With your HSA, you have the option to use the funds not just on yourself but on your spouse and on any dependents, you have as well. This means that if you have an HSA, your whole family can use it.
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?
How much you invest in your HSA is entirely up to you. However, there are some limits. For 2023 an individual, the limit is $3,850; if you have a family, then the limit is $7750. If you have a large family or foresee having lots of medical expenses, then you may benefit from depositing a larger portion of your income into an HSA. If you have lots of prescription drugs to pay for or other recurring medical expenses, then keeping your HSA well-funded may 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.
