A Health Savings Account (HSA) is a way for anyone with a high deductible insurance plan to set aside extra money to pay for medical expenses not covered by their plan. It is meant to supplement your health insurance and make out of pocket payments more manageable.

Money that goes directly into your HSA is not taxed. However, there are restrictions on who can have an HSA and what the money can be used for.

Who can start an HSA?

Health Savings Plans are only for those who have a high deductible health plan (HDHP), either through their employer or the marketplace. You deductible is the amount you pay out of pocket for covered services before your insurance plan starts to pay the rest. For example, if you have a $1,000 deductible, you will pay the first $1,000 of your care each year and the insurance will start to pay after you have reached that amount.

High deductible health plans are best for those who are generally healthy and have few medical expenses. They have a lower monthly premium (the amount you pay monthly to enroll in the plan), but you will pay more for health care at the point of service. You want to be able to pay the high deductible when you are billed, and that is where a HSA can help.

In 2020, a HDHP is defined as an individual plan with a deductible of at least $1,400 or a family plan with a deductible of at least $2,800. This changes annually, so check with healthcare.gov for updated information. When you are shopping for a health insurance plan, they should be labeled if they are HSA-eligible.

You can only contribute to an HSA until you are 65 and covered by Medicare. You can continue to withdraw from an already established account after that age though.

How do I start an HSA?

Most health insurance companies that offer high deductible health plans (HDHPs) will also offer health savings accounts. Banks and other financial institutions also offer HSA plans. Check with the places you already do business to consolidate your finances and make funding the HSA simple. Many will offer direct deposit into the account to make saving easy.

There is a limit to how much money you can put in an HSA each year. In 2020, an individual can save a maximum of $3,550 and a family can save a maximum of $7,100. This number also changes annually so keep up with any changes made to the federal program.

Any money not used each calendar year can be rolled over to the next year. Most HSAs earn interest, and the interest is also exempt from taxes. If in the future, you change employers or health insurance plans, you do not forfeit the money in the HSA. It continues to be at your disposal to pay for medical expenses.

You are not the only one who can contribute to the plan. Employers often offer to help fund the account if they have high deductible plans. Your spouse and other family members are also allowed to deposit funds in the account as long as you do not exceed the maximum contribution.

What can I use the money for?

Most accounts will provide you with a debt card or checks that can be used anywhere to pay for your medical expenses.

The money in your HSA can be used for any medical expense. This includes:

  • deductibles
  • co-payments
  • vision care
  • dental care
  • acupuncture
  • chiropractor care
  • prescriptions
  • home health care
  • medical equipment

You even have the freedom to pay for medical expenses for those who are not covered by your high deductible plan such as a spouse or child.

While a high deductible insurance plan is not an option for many people with higher medical care costs, for those who qualify, a HSA is a great way to save for any expenses not covered by insurance. The tax incentives make it easy to invest in the account and a knowledgeable investment expert can help you make the most of the benefits of this plan.

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