For many people, a health savings account (HSA) combined with high-deductible insurance is a great option. Health savings account benefits come from HSAs being cheaper than a full-featured plan, offering tax advantages and putting the power of choice in the hands of consumers.
Health savings accounts have been called “a powerful financial tool to cover medical expenses and save for the future” by Kiplinger Financial. They are often referred to as “Health IRAs” because they operate in much the same way. Money is put into a tax-deductible account each month either by you or your employer. That money can then be spent on many healthcare expenses like doctor bills, over-the-counter drugs, or medical devices.
Personal HSA Benefits
In light of significant health savings account benefits, there are contribution limits to this powerful and flexible tool. In 2019, the tax deferred limits are $3,500 for an individual and $7,000 for a family. For individuals over 55 years of age, the government allows an additional $1,000 in contributions each year. An HSA also has to be accompanied by a high deductible policy with an annual deductible not less than $1,350 for an individual or $2,700 for a family.
One important change that came with Obamacare was to eliminate prescription drugs from qualifying as a health savings account expense. All other health expenses still qualify, such as doctor’s visits, prescription glasses, and other medical devices. If expenses for an illness exceed the out-of-pocket limits of your accompanying high deductible policy, then your policy will kick in to cover the rest.
Financial HSA Benefits
Funds that accumulate in a health savings account remain tax deferred until age 65, when they can be withdrawn with no penalty if not spent on medical expenses.
There are many benefits to a health savings account beyond your healthcare. Money not spent from an HSA in one calendar year is rolled over to the next year with no penalty, providing a source of pre-tax investment. Many financial advisers now offer interest-bearing HSA plans which operate like an IRA. Plans which include an HSA are offered by most major health insurance provider as well.
Small Business HSA Benefits
Health savings accounts are especially attractive for small businesses who want to offer insurance to their employees but feel they cannot afford a traditional plan. High deductible insurance is usually hundreds of dollars per month cheaper than a comprehensive policy. Employers can provide all or part of the difference as their contribution to an employee’s HSA, fitting the cost of providing health care to their own budget. In addition, relatives can make gift contributions to a health savings account. It’s then up to the consumer to find the healthcare of their choice.
Deciding Whether or Not to Get an HSA
For all of the health savings account benefits that exist, there are potential pitfalls as well. For example, the cost and quality of healthcare now falls on the consumer, and that information can be hard to find. Persons with chronic health problems, which require regular care, may also find that a high deductible health plan with an HSA isn’t right for them.
With all the advantages, health savings accounts are growing rapidly. While only 8 percent of all Americans have one, or about 15.5 million people, they are growing at a rate of 15 percent per year. The popularity of an HSA comes from both the flexibility to make your own health choices as well as the financial and tax advantages, according to the same survey by America’s Health Insurance Plans.
Health savings accounts are a great alternative to the traditional, higher cost, whole-health insurance model for people who want to manage their own healthcare. The ability to put savings from good health practices away in a tax-deferred account while saving money over a comprehensive plan is a great benefit. The required high deductible plan also means that you are covered in the case of a catastrophic event.
If it works for you, health savings account benefits can be win-win in helping you cost effectively take control of your own care. HSAs are a choice that every consumer should read up on to decide if they’re right choice for their own personal health situation.
Taking the Next Steps
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