The Benefits of Health Savings Accounts
This is a special blog series from Sears Insurance on Health Savings Accounts, or HSA plans, and how they work. The series will include three blog posts on various topics over the course of the next few weeks.
About Health Savings Accounts
A Health Savings Account, or HSA, is a personal savings account for medical expenses that pays for current and future medical expenses for yourself and any tax dependents. This account offers advantages to employees, such as unused fund rollover, triple tax savings, investment opportunities and account portability. There are no income requirements for HSA, and fully insured dental and vision plans do not conflict with HSA eligibility.
The HSA savings account sets aside pre-tax money to pay for qualified medical expenses. To open one, an individual must be covered by a qualified High-Deductible Health Plan (HDHP) and cannot be covered by other non-qualified insurance coverage.
So what is a HDHP? If you’re enrolled in an HDHP, you may pay for more of your health care items and services before the insurance plan pays. By combining this with an HSA, you can pay the higher deductible using money from your tax-free HSA. In 2022, the HDHP minimum deductible for an individual is $1,400 and $2,800 for a family plan. The Maximum out-of-pocket costs are $7,050 for an individual and $14,100 for a family (healthcare.gov).
Those with an HSA may not be entitled to Medicare benefits and may not be claimed as a dependent on someone else’s tax return.
With an HSA, you can withdraw funds for non-medical reasons; however, the IRS will impose a 20% penalty tax. You can withdraw for non-medical reasons after turning 65 without penalty, but amounts will be taxed as normal income. HSA’s can also pay long-term care, Medicare Part D, Cobra and health care premiums while receiving unemployment.
The triple tax savings afforded by an HSA is something worth considering all employees, but especially those young and healthy employees who can build a fund for their future medical or retirement expenses. Employees can gain significant premium savings over other health plan offerings and these savings are oftentimes enough to cover funding a significant portion of the employee deductible. While there are drawbacks to HSAs, including the administrative burden, high deductibles — including prescriptions that are subject to deductibles, the benefits outweigh these downsides.
For more information on HSAs, please visit searsinsurance.info.
The HSA series will continue next week and cover setting up and funding your HSA.
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