Health Savings Accounts have been around since 2004. This special type of health insurance was created to help people with high-deductible health plans get tax-deductions on their medical expenses. HSA plans are also known for low monthly premiums, plus tax-free earnings.
Your HSA contributions can be deducted from your taxes whether you save the money, invest it, or spend it on qualified health care. Unlike Flexible Spending Accounts, the unused balance at the end of the year is not forfeited. It carries over year after year to continue growing with tax-free interest. You can simply let the balance grow to prepare for your retirement. Or, you can spend it for qualified health care that might not be covered under your plan, like going to the dentist, or something like aromatherapy.
What are the requirements to start an HSA?
You will need a high-deductible plan that is compatible with an HSA. You can start an HSA no matter what level of income you earn or what type of work you do. HSA individual policies must have a deductible of at least $1,200 and family plans need deductibles of $2,400 or higher.
Pros of High-deductible health plans
High-deductible health plans generally give you lower premiums than conventional co-pay plans. With the implementation of the health care reform law, recommended preventive care services are now 100-percent covered every year, even if you have not met the annual deductible. Co-pays and co-insurance are not applied to recommended preventive care, either. The money you save from the low premiums and tax deductions can be added to your HSA to build the balance.
If you’re still cautious about a high deductible, I suggest you go with one on the low end. Then, after you have built up your HSA balance, switch to a plan with a higher deductible because you know you have the funds to meet it. When you decide to increase your deductible, run our instant quotes to see the rates and deductibles from the leading insurers in your area.
Wiley Long is President of HSA for America, and a passionate advocate for consumer-based solutions that will improve price transparency and lower health insurance and medical costs for people purchasing individual and family health insurance plans.