With healthcare costs continually in the news, you may have heard about Health Savings Accounts (HSAs). HSAs are touted as a solution for controlling healthcare costs, but is an HSA right for you?
What is an HSA?
HSAs are tax-advantaged personal savings accounts where the money can only be used to pay for healthcare costs such as medical, dental and vision expenses. It is your money, but it must be spent on healthcare and is subject to IRS rules.
To qualify for an HSA, you must be insured by a High-Deductible Health Plan (HDHP). Although the deductible on an HDHP is high, the premiums are typically lower than most traditional plans. Likewise, the HDHP often covers many preventive services outside of the deductible. Once the deductible is hit, plan coverage begins.
HSAs and HDHPs were created to help control health care costs. The thought is that people will make better health care decisions if they’re using their own money. For example, a person with ‘skin in the game’ for their healthcare dollars who had a non-emergency medical need might be more likely to schedule a regular office visit rather than going to an emergency or walk-in clinic, which are traditionally more expensive.
HSA Advantages
- You get to decide how much money to set aside for health care costs (within the allowed limits).
- Leftover money at the end of the year rolls over into the next year, unlike traditional Flexible Spending Accounts.
- Money going into your HSA is not taxed.
- You control how to spend your HSA money and can shop around for care.
HSA Disadvantages
- It can be difficult to accurately budget health care expenses.
- HSA money used for nonmedical expenses will face a tax penalty.
- The desire to build an HSA balance may lead some people to avoid medical care when they need it.
Is an HSA right for me?
Like any financial tool, you and your American Federal Banker need to determine if it’s a good fit for your situation. If you’re generally in good health and are interested in saving for future health care costs, an HSA may be of interest to you. Likewise, if you expect that you may have high healthcare costs in the coming year, but not enough to meet a high deductible, an HSA might not be the best choice for you.
Make an appointment with your American Federal Banker to determine if a Healthcare Savings Account is a good fit for your situation.
For tax-specific questions, always consult with your Tax advisor.
