Why You Should Consider Using a Health Savings Account

Health insurance has now become a requirement in the United States, and many people are looking for the best way to maximize their coverage and their costs. Two of the major costs when it comes to health insurance are the monthly premium and the annual deductible. Your particular situation may require high costs for both, so the next step is finding out what your alternatives are. Consider a Health Savings Account (HSA) to help you reduce some of your annual costs of health care.

Think of an HAS as a savings account for health expenses. But not anyone can open one. There are several criteria you must meet before being able to take advantage of their tax benefits. The first is that any money you deposit into the HSA must be used for qualifying medical expenses. This means you have to look carefully at what is covered and what is not before moving ahead.

Next, your current health insurance plan must be a high deductible plan. Currently, this is the government guidelines used to determine if your plan falls under the guidelines.

  • Your single plan has a minimum deductible of $1,300
  •  You have a family plan which has a minimum deductible of $2,600
  • Your single plan’s maximum out-of-pocket costs are $6,550
  • You have a family plan which has maximum out-of-pocket costs of $13,100

Use these criteria as the basis for which you can sign on for an HSA, but remember you don’t have to. So the question is why else would you go down this route.

One of the most beneficial reasons is your HSA will roll over from year to year. If this year is excellent for you financially and you max out your HSA deposits, you have the option of continuing to add to your total in a good year and have it available in a bad year. This way you can plan ahead for potential decreases in annual income and still get quality health coverage, a problem many people who lose their jobs face immediately.

Earlier the idea of a qualifying medical expense was mentioned. Here you have to think outside the box a bit as HSAs can be used for not just “doctor” and hospital visits but also dental procedures, prescription medications, and even eyeglasses. Many medical insurance plans do not cover these essential services, so check with your own plan before adding and HSA if this is your major reason for choosing to do so.

You can actually make a high deductible plan work in your favor by combining it with an HSA. The reason is as a general rule you will end up with a much lower monthly premium, which means you can choose a plan that in addition to having a high deductible will also not cover certain medical expenses such as dental and eyeglasses. You then could open the HSA for these expenses and put the money away for future use. Not everybody wears eyeglasses or needs to have dental work done, so you can benefit by not having to pay for services you will not use.

Finally, there are the tax advantages. This is the main reason most people sign on to the idea. Surprisingly there are three ways to save on your taxes and they can all take place in the same tax year. The first is that every dollar you put into an HSA reduces your total income when filing taxes. There are two maximums, one for single plans ($3400) and the second for family plans ($6750).

It gets better if you are over 55 years old because there is an extra $1000 you can save and deduct from your total income. As for the second and third advantages, they are often seen as linked. Any interest you make on your HAS is tax free, and any withdrawals you make from your HSA are also tax free.

An HSA may not be a useful situation for everyone, but if you are paying high premiums or have high deductibles you need to meet then it is worth looking into. If you have a family or pay a lot in premiums or deductibles, the HSA deserves a serious look. As always, consulting with a tax advisor if you are a high wage earner is recommended before making any final decision.


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