Health Savings Account (HSA) Basics
What is an HSA?
A Health Savings Accounts is a consumer-managed, tax-favored
alternative to traditional health insurance created for
the purpose of paying medical expenses. To
open an HSA, you must be covered by a High Deductible Health Plan (HDHP). Except
for preventive care, you must meet the annual deductible before the plan pays
benefits. Preventive care services are generally paid either before you meet
your deductible, after you meet a smaller deductible or on a co-payment basis.
Once you are enrolled, you own and have complete control
over the money in your HSA. You make the decisions on how
you want it spent, not a third party or a health insurer.
You also get to decide how and where you want to invest
this money to grow your account. Account funds are used to cover medical expenses before the
plan deductible has been met. Unspent account balances accumulate
and accrue interest from year-to-year. Unlike amounts in Flexible
Spending Accounts that are forfeited if not used by the end of
the year, unused funds remain available for use in later years. Once
the health plan’s annual deductible has been met, coverage
resembles conventional insurance, typically in the form of a preferred
provider organization (PPO) with little-to-no cost sharing for
in-network services, and limits on total out-of-pocket costs.
HSAs do not replace a normal or typical health insurance policy. They
are designed as a supplement to a high-deductible health insurance
policy. Because the HSA is tied to a high-deductible health
insurance policy, you will “pay as you go” for medical
care, using your tax-free HSA dollars, until you spend up to the deductible.
Once you meet the deductible, the health insurance pays for most of
your medical expenses for the rest of the year. You may choose your
own doctor and level of care. By themselves, HSAs are savings vehicles — not
insurance policies — so they don’t restrict your access
to coverage or your choice of providers.
What are the benefits of an HSA?
- Your own HSA contributions are tax-deductible.
- Interest earned on your account is tax-free.
- Withdrawals for qualified
medical expenses are tax-free.
- Unused funds and interest are carried over, without
limit, from year to year.
- You own the HSA and it is yours to keep—even
when you change plans or retiree.
Who is qualified to obtain an HSA?
You must be covered by a High Deductible Health Plan
(HDHP) to take advantage of HSAs. You also must not receive
coverage under another health insurance plan, not be
enrolled in Medicare,and not be someone else’s
dependent.
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