Health Savings Account
A Health Savings Account (HSA) works in conjunction with a high-deductible health insurance plan to cover qualified health care expenses until your deductible is used up. And it brings sizeable tax savings. In combination with the low premiums often associated with high-deductible health insurance plans, this account can also help you save for retirement by cutting down on health care expenses along the way.
In order to be considered eligible for an HSA, the following standards must be met:
- You must be covered under a High Deductible Health Plan (HDHP).
- If your spouse has a non-HDHP plan and it doesn’t cover you, you’re eligible.
- You must have no other health coverage.
- You must not be enrolled in Tricare or Medicare.
- No one will be claiming you on their tax return as a dependent.
- You do not have a Flexible Spending Account (FSA).
How Does an HSA Work?
All of the funds you deposit into your HSA can be written off on your taxes, meaning you don’t pay taxes on them. You also aren’t taxed when money is withdrawn, provided you use it for expenses related to your health care needs.
Your HSA can be used for eligible expenses related to health care, up until you fulfill your deductible. (Only high-deductible health plans have an HSA option, and these plans usually have lower premiums.) After that happens, your HSA becomes available for copays or coinsurance, until such time as you reach the limits of your out-of-pocket maximum.
Your HSA account and the money in it belongs to you, even if you are covered through an employer but plan to change jobs in the near future. The money is yours — even through career changes. Even better, the funds in your account roll over every year. It’s not a “use it or lose it” type of account.
How Your Health Plan Works With an HSA
- You contribute money in a lump sum, or through payroll deduction with your employer, to fund your HSA. Money that comes out of your paycheck is pre-tax, meaning it will reduce your taxable income. Many employers will supplement its employees’ accounts with a contribution as well. They can afford to do this because the high-deductible health plans offer significant savings on health care expenses for the company.
- Use the money in your HSA to cover qualified health expenses until it’s used up.
- You pay for expenses out of your pocket after the account is used up, except preventive care, until your annual deductible is met.
- Once the deductible is met, your health plan begins to pay. You may pay a share of expenses (coinsurance) up to an annual out-of-pocket maximum. Your plan pays the rest.
- Your health plan pays all eligible expenses for the rest of the year.
Benefits of an HSA
- Your contributions are tax-deductible.
- Any withdrawals you make for health expenses are tax-deductible.
- You can earn interest on the funds in your account, which are not taxed.
- At the end of the calendar year, the balance in your HSA account rolls over.
- The account is in your name, so even if you change employers, the money is still there for you.
- Many employers will make contributions to their employees’ accounts.
- You can change the amount of money you contribute to the account if your needs change.
- You can begin using your HSA dollars for any purpose after you turn 65 — not just health care. Any withdrawals remain tax-exempt.
- You're in control! You decide when and how to spend or save the money in your HSA.
What Expenses Can Be Paid Out of an HSA?
You can only pay for qualified medical expenses from your HSA (until you reach 65, then you can use the dollars for any purpose). For a complete list of qualified expenses, see the IRS Pub. 502, “Medical and Dental Expenses.” IRS regulations require that you keep all receipts and any documentation for eligible medical expenses with your personal tax records.
Some examples of qualified expenses are:
- Doctors’ appointments
- Dental appointments
- Hospital care
- Psychiatric care
- Vision care
- Long-term care, subject to limitations
Centric Bank Makes Health Savings Accounts Simple
Centric Bank offers a full-featured HSA account which includes:
- Unlimited Check Writing
- Free Debit Card
- Free Online Banking & Bill Pay
At Centric Bank, we know that figuring out a new financial product isn't always easy. It's why we offer no-nonsense, hassle-free explanations of financial products such as HSAs. Do you have questions about how these work? Are you unsure of your eligibility? You can always contact Centric Bank or visit one of our Financial Centers to speak to one of our team members about health savings accounts and your financial needs. We can help you choose the right product and can make sure your health savings accounts are helping you save money on your healthcare expenses.