6 Amazing HSA Benefits Little Did You Know
Paying premiums for health insurance is painful. But a health savings account (HSA) allows you to gain while plunking hard-earned dollars down to your underwriter. If you are still unaware of, Learn about the cool benefits hidden behind HSA and make sure you do not overlook a nice earning opportunity.
Why HSA matters
The global coronavirus epidemic has revealed bad truth: an overwhelming majority of people are not ready for the worst-case scenarios. Too many Americans have not been well-prepared for unforeseen, monstrous healthcare expenses.
Well, it is just human nature. We take time to thoroughly plan and organize a summer trip but have no plans or intentions to get in the hospital some unhappy day. Relying solely on their healthcare insurance, many US citizens found themselves in financial hardship during the pandemic.
Many people simply could not afford emergency care and prolonged hospitalization to completely beat the malady. The result was horrible: more than a half-million COVID-19 victims, and a good share of them resulted from just not having sufficient medical coverage.
If you don’t want to struggle financially due to exuberant and unexpected medical bills, you want to seriously consider buying a health savings account.
What is HSA?
A health savings account is similar to a personal savings account, but the money in HSA can only be used to offset expensive healthcare costs. Neither your employer nor an insurance provider can own or control your HSA account – it is the policyholder that gets a grip on their health savings account.
The money you send to your health savings account is not subject to taxes. To qualify for HSA, an applicant must first enroll in a high-deductible health insurance plan (HDHP). The untaxed funds from HSA can be used to pay deductibles, co-payments, co-insurance, and elevated medical bills, which may dramatically trim your overall healthcare expenses.
Note that dollars from HSA can generally not be used to pay health insurance premiums. HSA capital carries over year to year if unspent. A health savings plan may gain interest or other earnings, which are not tax-free.
Many health insurance providers offer HSAs for their high-deductible health insurance plans. Your employer may also provide an HSA option when insuring you. It is also possible to open HSA on your own in a bank or other financial institutions.
Your employer can pay contributions to your HAS as a workplace perk (often through payroll deduction), but the account is entirely yours, and remains yours even if you switch jobs or retire.
Qualification criteria include holding HDHP and being younger than 65. If your spouse uses your health insurance as secondary coverage, they also must carry an HDHP policy.
High-deductible health insurance must be your single health insurance. You will not be able to enroll if you are covered by any other health insurance. Exclusions are possible for dental, vision, disability, and long-term insurance. If you have any of these policies plus a high-deductible health insurance plan, you are eligible for HSA.
The fact that a high-deductible health insurance plan is an obligatory condition for HSA fends off many people, causing them to seek more affordable health insurance products. And they make a big mistake by scorning HSA. Here are several huge benefits you will reap if you opt for a health savings account.
HSA helps decrease your big spending on HDHP
Enrollment in a high-deductible health insurance plan is an eligibility criterion for HAS, which may be very disheartening for many ordinary American workers. Unless they know how HSA gains can be used.
HSA amassed dollars can help you meet all these notorious copays and deductibles of your high-deductible health insurance policy. Plus, this money can cover expenses on dental, vision and health care, prescription medicines as well as certain over-the-counter medical products for the policyholder, their spouse, and dependent children.
Generally, HSA holdings cannot be spent on health insurance premiums. However, as with any rule, there are a handful of exceptions:
- Working Americans who choose COBRA coverage can use their HSA funds to splurge on their COBRA charges.
- Americans, who carry health insurance not via COBRA and currently receive unemployment compensation, can use their HSA money to finance their health insurance premiums.
- Working USA citizens at the age of 65 or older can utilize their HSA resources to pay for Medicare premiums or to reduce their payroll deduction through the employer-sponsored health insurance plan.
- Long-term care insurance premiums can also be paid through HSA dollars.
HSA offers great tax advantages
An outstanding feature behind health savings accounts is that they offer triple tax advantages.
- Contributions to your HSA are generally made with pre-tax dollars through your payroll deductions. This means that these dollars are not included in your gross income and not subject to income taxes.
- If you contribute to your HSA with your own (after-tax) money, you can deduct that money from your gross income on your tax return, thereby decreasing your tax bills for the year. The IRS (Internal Revenue Service) sets annual limits for HSA contribution amounts. For 2021, HSA maximally allowed contributions are $3,600 for an individual and $7,200 for family insurance. People aged 55 and older are allowed to make an extra $1,000 catch-up contribution to their HSAs.
- When you withdraw your HSA funds for qualified medical expenditures, you will receive the sum without paying taxes.
Besides, when an HSA owner turns 65, they can withdraw their HSA resources to pay for common living expenses, such as utility bills, grocery, or traveling (why not?). If you decide to withdraw your HSA funds for anything but qualified healthcare expenses, these withdrawals will encounter taxes, like any regular distribution taken from a retirement account.
HSA made through payroll deductions are dispensed of FICA taxes, and the account owner is not mandated to withdraw minimum distributions at any age. This is where the prime difference between HSA and 401(k) or IRA accounts lies.
HSA is entirely yours
Many workers wean themselves off an employer-funded HSA, mistakenly thinking that the account will not follow you if they decide to change jobs. And it’s their loss!
The trick is that a health savings account is not bound to your employment. It is other health insurance plans that are tied to your workplace, such as flexible spending accounts (FSA) or your employer-financed health insurance. But it is not the case with HSAs.
Once you set up your HSA, it becomes portable. It is fully yours. Therefore, if you get fired, are given a furlough, or just decide to quit the current job, your health savings account (and, surely, all its dollars) will go with you, and you will not forfeit your right to claim these dollars on eligible healthcare expenses.
Also, unlike FSA counterparts, HSAs are not “use-or-lose” accounts, and your remaining deposit rolls over each year. In addition, when signing up with HDHP and HSA, you can select to cover out-of-pocket healthcare bills now and get a non-taxable distribution in the future in the amount of your current expenses.
Such an approach lets you leverage your HSA funds as a potential life-saver in case of a very expensive medical situation. Just remember to properly keep your receipts to prove all distributions. Moreover, with the HSA, you can alternate your contribution size at any time during the year. You are not trapped by the contribution size you chose during the open enrollment period.
New Laws expand the eligibility expenses of HSA funds
In March 2020, the U.S. Congress passed the Coronavirus Aid, Relief, and Economic Security Act aka CARES Act in response to the economic malaise of the COVID-19 national disaster in the country.
The new legislation extended the list of HSA-eligible expenses. Specifically, the new law allows people to use their HSA funds to pay for certain OTC medical items and supplies they need to fulfill quarantine and social distance requirements without needing a prescription. The extension also spans menstrual care products. This means that account holders can now buy menstrual tampons, pads, and other related products with their HSA funds.
CARES Law also broadened the coverage of telemedicine and other remote healthcare services. In particular, it now allows HDHP policies to reimburse telemedicine services below the deductible. Before the Act, IRS never allowed HDHPs to recoup telehealth costs until the plan’s deductible was met.
No extra legwork to put your HSA in action
When you open a health savings account, a provider, in most cases, will issue a debit card, so you will be able to pay for qualified medical expenses and prescriptions without struggling with any extra paper- or legwork.
If a medical bill is delivered by mail, you can contact the billing center and settle the issued invoice by phone just by using your HSA plastic. Or, you can indemnify yourself from your HSA if you have paid your medical invoice with an alternative payment form.
HSA funds are investible
HSAs can serve as an investment vehicle too. Account owners can fuel their HSAs to be better prepared for potentially devastating medical costs in future. But it is also possible to invest some or all HSA resources in mutual funds, stocks, bonds, ETFs, and other securities. It may be an amazing way to prepare for unforeseen health care costs in retirement. However, investing in securities is a highly risky practice. A good rule of thumb is to consult a financial planning specialist before putting your HSA gains on the line.
The harsh reality has taught us that those succeed who are well-prepared for the worst. If your employer suggests you establish a health savings account as a part of employment benefits, don’t overlook that opportunity. An HSA can prove to be essential in protecting your and your family’s financial well-being if an expensive emergency happens.
