Three Big Ways a Health Savings Account Can Help You Save Money

Perhaps you’ve heard of an Individual Retirement Account (IRA) or even a Flexible Spending Account (FSA), but what about a Health Savings Account (HSA)? If your employer offers high-deductible health insurance policies, you may have run across this acronym. As more employers offer high-deductible health plans, HSAs are gaining popularity.

So what is an HSA? A Health Savings Account is a tax-free way to save for health expenses.  In order to be eligible to open an HSA, you must have a health insurance policy with a deductible of at least $1,200 for single coverage or $2,400 for family coverage. That deductible is generally how much you have to cover out-of-pocket before insurance kicks in.

There are many advantages to an HSA, and it can be a great investment medium for many people. If you’re curious about opening an HSA, read on—Health Advocate provides the following reasons why an HSA may be beneficial for you:

1.       It’s a triple threat.  With an HSA, the amount you contribute is a part of a triple tax advantage: tax-free contributions, tax-free withdrawals and tax-free interest earned on savings.

2.       No penalties. Money used for qualified medical expenses can be withdrawn tax-free for you and your dependents, and earnings inside the accounts also grow tax-free. There are no penalties or taxes for using the funds for qualified medical necessities.

3.       Interest earned. HSA funds can roll over from year to year, which means that if you don’t use all the money for healthcare expenses, you can keep it. The funds sit in your account, collecting interest over time. This is one way an HSA is different from a Flexible Spending Account (FSA), where you would lose the money at the end of the year if you don’t use it.

Keep in mind that an HSA may have many potential advantages; however, you do have to think about your anticipated healthcare expenses.  If you are in relatively good health and want to save for future health expenses, an HSA can be a good option. If you are chronically ill or have a lot of healthcare expenses, you may either need to budget your health expenses or find out if your employer offers a traditional lower-deductible health plan.

To learn more about HSAs, speak to your human resources department or benefits team. Or if you have an HSA (or want to get one started), and you are a Health Advocate member, give us a call.  Our Personal Health Advocates can help answer your questions about HSAs and help you understand what types of services and purchases typically count as qualified medical expenses.

A Pre-taxed Health Savings Account (HSA) can put more money in your wallet

With the tax season deadline less than a week away, Health Advocate Inc., an advocacy and assistance company that helps people navigate the healthcare system provides some pointers on how a Health Savings Account (HSA) can save you money on a pre-tax basis.

If you have a high-deductible health plan, you may have the ability to create a Health Savings Account (HSA). An HSA can save you money on a pre-tax basis and can be beneficial in the long run for a variety of reasons.

More employers are shifting toward high deductible health plans coupled with HSAs. Enrollment in the plans doubled since 2008, with an estimated 11.4 million participants in January 2011, according to American’s Health Insurance Plans. Let’s take a look at the tax advantages of an HSA.

It’s a triple threat. With an HSA, the amount you contribute is a part of a triple tax advantage: tax-free contributions, tax-free withdrawals and tax-free interest earned on savings.

No penalties. Money used for qualified medical expenses can be withdrawn tax-free for you and your dependents, and earnings inside the accounts grow tax-free. There are no penalties or taxes for using the funds for qualified medical necessities.

Interest earned. HSA funds can roll over from year to year, which means that if you don’t need all the money for healthcare expenses, you can keep it. The funds sit there collecting interest over time. This is one way an HSA is different from a Flexible Spending Account (FSA), where you lose the money at the end of the year if you don’t use it.

Not too late for contributions. To save on your 2011 taxes, you have until the day the tax returns are due to make the maximum contributions your employer allows. For 2012, individuals can contribute up to $3,100, while families have a maximum of $6,250. There's also a $1,000 catch-up contribution allowance for people 55 and older.

Deduct your funds. Like a pre-tax 401(k), contributions to an HSA aren’t taxable, whether made by the employer or the employee. If the funds are deducted from your paycheck, you won’t have to pay Social Security taxes. But if you do withdraw money for non-qualified expenses, you will have to pay a tax on the withdrawal plus a 20% penalty.

Keep in mind that while an HSA may have many potential advantages, it may not be for everyone. When considering a high deductible health plan and an HSA, you have to think about your anticipated healthcare expenses. If you are in relatively good health and want to save for future health expenses, an HSA may be a good option. However, if you are chronically ill or have a lot of healthcare expenses, this may not be the best choice. To find out if your employers offers and HSA, speak to your Human Resources Department or Benefits Team. Or if you have an HSA, and access to Health Advocate’s Personal Health Advocates, give us a call and we can walk you through it.

Health Advocate does not provide financial advice. If you have questions about your taxes, please contact your accountant or financial advisor.