A Health Savings Account (HSA), sometimes known as a medical savings account, is a type of savings account in which you can deposit funds to use on medical expenses. Health savings accounts provide the benefit that any funds used are tax-exempt, allowing you to save a high percent of your costs over time. HSAs are available to any taxpayer in the United States with an HDHP. Health savings accounts were made available to the general public in late 2003, a portion of the Medicare Prescription Drug, Improvement, and Modernization Act. HSAs are also a component of consumer-driven Health Plans, and are arguably the most widely-known type of medical savings account.
A health savings account can be used instead of traditional health insurance but can also be used in conjunction with one. It is, basically, a savings account that offers a different way for one to pay for their his or her own health care. HSAs allow you to pay for current health expenses as well as save for future qualified medical and retiree health expenses on a tax-free basis.
One thing to note is that you must be covered by a High Deductible Health Plan (HDHP) to be able to use a health savings account. Since a high deductible health plan usually costs less than what traditional health care coverage costs, the money that you save on insurance can then be put into the Health Savings Account, yet another benefit of using a health savings account.
You own and you control the money in your HSA, making it very similar to a checking account. Decisions on how to spend the money are made by you without relying on a third party or a health insurer. You can also decide what types of investments to make with the money in the account in order to make it grow.
What is a “High Deductible Health Plan” (HDHP)?
Sometimes referred to as a catastrophic health insurance plan, an HDHP is an inexpensive health insurance plan that generally doesn’t pay for the first several thousand dollars of health care expenses (i.e., your deductible) but will generally cover you after that . You must have an HDHP if you want to open an HSA. Of course, your HSA is available to help you pay for the expenses your plan does not cover.
What type of plans will qualify me for a Health Savings Account?
In order to qualify to open an HSA, your HDHP minimum deductible must be at least $1,100 (self-only coverage) or $2,200 (family coverage). The annual out-of-pocket (including deductibles and co-pays) cannot exceed $5,500 (self-only coverage) or $11,000 (family coverage). HDHPs can have first dollar coverage (no deductible) for preventive care and apply higher out-of-pocket limits (and co pays & coinsurance) for non-network services.
How can I get a health savings account?
Consumers can sign up for HSAs with banks, credit unions, insurance companies and other approved companies. Your employer may also set up a plan for employees as well.
How much does an HSA cost?
An HSA is not something you purchase; it is a savings account into which you can deposit money on a tax-preferred basis. The only product you purchase with an HSA is a High Deductible Health Plan, an inexpensive plan that will cover you should your medical expenses exceed the funds you have in your HSA.
Are all HSAs the same?
Not all HSAs are the same. Fees, interest rates, investment options, and other features vary greatly. Some allow for accounts to be opened online using E-signature making for an easier set-up process. Others provide account holders with access to online tools designed to help consumers make better informed decisons regarding health care spending. Another feature offered by a few banks is a dedicated HSA customer answer center.