Are you covered by a high-deductible plan? Then you may be eligible for a Health Savings Account (HSA). HSAs were created in 2003 to respond to an overwhelming need for tax-preferred savings plans that will help people plan for and afford medical expenses.
What is an HSA?
A Health Savings Account (HSA) is not unlike a personal savings account in that you personally (not your employer or your insurance provider) set money aside in the account to prepare for medical expenses. Just like with a savings account, you can determine a set amount of money that will be automatically deposited into your account directly from each paycheck. In the case of a Health Savings Account, the money you set aside in this fund will not be taxed and will be used to help control healthcare costs and out-of-pocket medical expenses.
In order to be eligible for a Health Savings Account, you must be enrolled in a High Deductible Plan. A High Deductible Plan is a health plan that offers an individual under the age of 65 a lower monthly premium rate and a higher deductible (the amount of money you spend out-of-pocket before your insurance begins paying for treatments). Many people prefer to opt for a High Deductible Plan because monthly premium payments are so low.
However, the serious downside to this plan is that in the case of a medical emergency, you will likely foot the entire bill as deductibles can near $3,000 for High Deductible Plans.
How does a Health Savings Account Work?
You as an individual or a family can decide how much money you would like to budget and secure in your Health Savings Account. Funds from an HSA account can be withdrawn to pay for co-pays, and expenses that are not covered by your health plan, like dental and vision care. As a convenience to users, transactions can be easily made with an HSA credit card and funds roll over year after year!
If you choose to enroll and participate in an HSA program, you will want to be sure and avoid making transactions for non-eligible expenses. If you make non-medical purchases using your HSA card, you will be faced with a 20% tax penalty.
What are the Benefits?
While Health Savings Accounts offer users convenience and flexibility, there are several tax perks as well! HSAs are among the most tax-favored account in the nation, because account holders can enjoy three key tax benefits: contributions are tax-free, earnings from interest are tax-free, and payments for eligible medical expenses are tax-free.
For additional information, check out Diamond’s Health Savings Accounts page.