Health Savings Accounts (HSA)

Health savings accounts are similar to a regular savings account you open through a bank, only the funds are strictly reserved for use on medical expenses. HSAs can be opened when an individual is enrolled in a high deductible health plan that is HSA-qualified. Every private health insurance company offers an HSA option, which can be an incredibly helpful method of paying for deductibles, prescription drugs, or services your plan will never cover, or are not covered until your deductible has been met. Some examples of care that your health insurance may not cover are common services such as vision and dental, so it is important to know how you plan to pay for these necessary expenses. Those who prefer to take control of their finances and their health care spending will benefit greatly from an HSA.

Funds in a health savings account are tax-advantaged, therefore they are allowed to grow without being taxed, and you have the ability to add it as a deduction from your annual income taxes. Another appealing feature of an HSA is that the money is yours to keep, regardless of relocation, switching insurance companies or plans. There is no penalty fee or revocation involved if you choose to let the funds sit and accumulate for some time. Some insurers have teamed up with major banking corporations to create  HSA debit cards for easy access and use of medical money.

Withdrawing money from an HSA for non-medical usage will be subject to an ordinary distribution tax with a 10 – 20% penalty fee (depending on the insurer or bank) which is meant to discourage use outside the context of health care. This only applies to individuals under the age of 65. For those who are 65 or older, there is no penalty fee to withdraw, but doing so will result in paying taxes on the account.

While some health insurance plans may be called a “health savings plan”, a health savings account is not a type of insurance plan in and of itself. It must be paired with a high deductible health plan, which can be a PPO or HMO, in order to operate. The benefits and coverage you receive are that of the high deductible health plan. A health savings account is exclusively a savings account you can use to help meet that high deductible, and other out-of-pocket costs incurred by medical services.

Besides exercising control of your health care dollars, the benefits of opening a health savings account with your high deductible health plan include:

  • Reducing your monthly premiums and receiving a typically generous array of coverage options
  • Lowering federal income taxes
  • Preparing for retirement by building an account for future health needs
  • Paying for your health care with a designated account for health care funds.
  • The ability to invest your HSA funds in stocks, bonds and mutual funds.