• Helen Raleigh

How HSA Can Help You SAVE For Healthcare

One of the key components of the latest House GOP's healthcare reform act is to increase access to health savings accounts (HSAs). HSAs aren't something new. We can trace their birth to 2003, when they were first approved by the U.S. Congress. However, more than a decade later, most Americans still are unfamiliar with what it is and how it can help them save for healthcare.

Here's how it works. If you want to open an HSA account, you have to have a high-deductible health insurance plan (HDHP) first. The IRS defines a HDHP as any plan with a deductible of at least $1,300 for an individual or $2,600 for a family. If your health plan meet the definition of HDHP, you can open an HSA account and contribute money up to a limit on a pre-tax basis into your HSA to help pay for qualified healthcare expenses. The annual contribution limit is $3,400 for an individual and $6,750 for a family.

The current House GOP plan will increase the annual limit on HSA contributions to match the annual deductible and out-of-pocket expenses under a high deductible health plan. Also, the GOP plan will make HSA rules more flexible. For example, they will let people use HSAs to pay for over-the-counter medications, which was restricted under Obamacare.

There are several benefits of incorporating HSA into your personal financial planning:

  • You can only open an HSA account with a high deductible health plan. If you are a healthy individual, you are saving money because high-deductible health plans usually mean lower monthly premiums than regular health plans.

  • Your contribution will help reduce your income tax liability because you make contributions on a pre-tax basis. Since there is no income restriction to open and fund your HSA, it is an especially attractive tax efficiency tool for those in higher income tax brackets.

  • When you do use money in your HSA to pay for qualified medical expenses, the distribution is tax free (If you use an HSA to pay for unqualified medical expenses, the tax penalty is 20 percent, unless you are 65 or older.)

  • The unused balance in your HSA can be carried over year after year and enjoy tax free growth.

  • HSAs are portable which means when you change employers or if you lose your job, you can take it with you.

Therefore, if you start early and you're healthy so you don't need to use your HSA funds very often, an HSA can be used as an investment tool, which enables you to build a good size nest egg to spend later on your health care needs when you need it the most.

But an HSA isn't for everyone. Keep in mind that you can only open a HSA account with a high deductible health plan. Deductibles for such a plan for a family could be as high as So people who choose such plans need to be disciplined savers who are willing and able to put aside several thousand dollars a year towards current or future healthcare related expenses. That is a tall order for many Americans. A survey shows that

So before you embrace an HSA and a high deductible health plan, make a realistic self-assessment and make sure your personal finances are in good order. It also helps if you eat right, exercise and stay healthy.

#HSA #Healthcare #GOPHealthplan #personalfinance

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