A health savings account (HSA) is a tax advantage savings account that can be used for your healthcare expenses. Money comes out of each paycheck and is deposited into the account for future use.
If you have a high deductible health insurance plan, an HSA can help provide some security for your health care cost and limit out-of-pocket expenses.
Advantages of an HSA
An HSA can help you save money and conveniently pay for healthcare costs.
An HSA provides triple tax benefits. Since the deposits are coming straight out of each paycheck, the money you contribute to an HSA is pretax, and the interest accumulates in the account is tax free. In addition, money withdrawn from an HSA a is not taxed, provided that you use it for qualified medical expenses.
You can budget how much you contribute to your HSA, and any unspent dollars will roll over each year.
For example: you have a $1500 annual deductible health care plan and contribute $1000 each year to an HSA. During the first year, you add a total of $1000 to your HSA, and your total healthcare expenses are $150. If you use the money from your HSA to pay for your healthcare expenses, your balance at the end of that year will be $850 not including interest earnings. During the next year, you also contribute a total of $1000 in your total healthcare expenses for the year are $300. At the end of the year, your remaining HSA balance will be $1550 balance will continue to grow each year and be available for you to use for future healthcare expenses.
Some employers may also choose to contribute to an HSA.
Is an HSA right for you?
HSA’s can be very cost-effective, but they are not for everyone.
An HSA is a good option for someone who is young and generally healthy. If you have a high deductible health insurance plan and are able to come up with a reasonable estimate of your healthcare expenses each year, you could potentially save a great deal of money with an HSA. If you have a chronic condition but you know your annual expenses and are able to budget enough money to cover your health care cost, an HSA could also be beneficial.
To find out more about whether an HSA is right for you, contact your HR representative.