1/17/2023
We can guess that Health Savings Accounts (HSA) or medical savings accounts help you to save money related to these kind of incidences.
The thing is that not everyone has access to these instruments in the United States, because the law requires you to be enrolled in a HDHP (high deductible health plan).
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This means that the health plan you belong to must be qualified to grant an HSA. According to the IRS, this type of coverage must have a higher deductible than the benefits provided by regular individual health insurance.
In addition, it must include co-payments, co-insurance and a maximum limit on what you can contribute.
Do you need a Health Savings Account?
Health Savings Accounts have their pros and cons that you should weigh as you ask yourself this question. These kinds of decisions require you to consider your options, how much budget you have, and the health plan you may need in the coming years based on your current health status.
KeyBank's Health Savings Account (HSA) allows you to save money for when you need medical care.
Savings account with checking and cards used to save money for medical expenses, with tax-deductible contributions.
Interest-bearing account to save and have liquidity when you have to face medical expenses for you or your family, saving taxes on your contributions.
You can consider three possible scenarios:
- You feel healthy. This may be an attractive option to take care of medical expenses that could arise in the years ahead.
- You are thinking about retirement. In this case, the HSA can help you use the money for medical care after you enter retirement.
- You have health problems. Assuming you're going to need expensive treatment in the future and you don't think you qualify for a high deductible, an HSA health plan is not the best alternative.
How do Health Savings Accounts (HSA) work?
- Once you are enrolled in a high-deductible health plan and have established your HSA, you can make contributions on your own. The dynamics of this resource are best seen by knowing its advantages:
- The money you pay in is tax-deductible, which reduces your taxable income.
- If you are age 65 and use the funds for qualified medical expenses, you can withdraw them tax-free.
- There is no "use it or lose it" policy. Since you own the account, the money remains yours year after year, regardless of whether you leave your job or retire.
- You are the account owner, not your employer. You can make whatever contributions you want within the annual limit ($3600 for individuals and $7200 for families), just like a regular account. This also applies to anyone else who wants to add to your fund.
- This account usually includes a debit card so you can pay for your expenses when needed. In addition, you can pay yourself back from the HSA if you pay by an alternative method.
- If you are over 65, there are no conditions on how you must use the money. You can continue to withdraw it tax-free to cover medical expenses. You can also take it out in the traditional way for any investment or purchase, just by paying taxes.
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Expenses covered by an HSA
There are several things you can take care of with this type of account:
- Physical therapy
- Doctor's appointments
- Preventive care
- Dental and eye care
- Addiction treatment
- Laboratory testing
- Hospital services
- Prescription drugs
- Medical equipment
Disadvantages of a Health Savings Account
Once you know you qualify for an HSA, consider its disadvantages:
- If you take out the accumulated principal before 65 and don't use it for health purposes, taxes apply and you're fined a 20% withdrawal fee.
- Some people are reluctant to seek health care when they need it because they don't want to spend the money they have in this account.
- You should keep detailed records of bills or receipts that prove the use of the money for approved medical expenses. This is to support your actions in the face of an IRS audit.
- Some medical savings accounts include a monthly maintenance fee or transaction fee depending on the financial institution. While these are not particularly high fees, their accrual subtracts from the interest it earns. In some cases, you can avoid these fees by maintaining a certain balance.
- The high-deductible health plan (HDHP) required by this savings vehicle can be a much greater financial burden than other health coverage. Although the monthly premiums are lower, for some it is difficult to spend $1,400 (individual) or $2,800 (family) to trigger the deductible for an expensive operation. Hence the recommendation to evaluate whether you will have many or few medical expenses in the future.
Health Savings Accounts (HSAs) can be viewed as a supplemental or emergency fund. If you want to know more about the most used financial resources, don't hesitate to contact us at Busconómico.
Español: ¿Qué son las cuentas de ahorros para gastos médicos (HSA)?