A Health Savings Account (HSA) is an individually owned, tax-favored account that allows individuals to pay for qualified health care expenses. In order to set up or contribute to an HSA, you must be covered by a Qualified High-Deductible Health Plan (HDHP). Premiums associated with an HSA-qualified plan are usually lower than a traditional plan, allowing employees to capture the savings and fund their account. HSA funds can then be used to pay for any qualified out-of-pocket medical, dental or vision expenses for not only the account holder, but also for their legal spouse and any tax dependents.
One of the best benefits of the HSA is that they offer triple tax savings on all of the contributions. This means that any contributions to the HSA can be made either pre-tax or are tax deductible at year-end. Any interest income or earnings on investments tied to your HSA also remain tax free. Lastly, as long as the HSA funds are used to pay for qualified health care expenses then no taxes will be charged on distributions.
100% of unused funds roll over year-after-year
Portable- the HSA goes with you even if you switch employers
Can pay for the eligible expenses of your legal spouse and tax dependents regardless of their insurance
Can be used for Medicare premiums as well as qualified long-term care premiums
HOW HSAs WORK WITH INSURANCE
The primary purpose of your HSA is to help you pay for any eligible out-of-pocket expenses you may incur such as those related to your health insurance deductible. Though your HSA can be used to pay for a number of items not connected to your health insurance, these are some of the most common expenses incurred by individuals. With the enrollment in a HDHP, you will be responsible for paying 100% of your annual Deductible. However, under a HDHP, all out-of pocket-expenses (i.e. prescriptions, doctor visits, MRI, etc.) processed through your health insurance will apply to your deductible. Once your Deductible is met, depending on your health insurance plan, you may be responsible for a percentage of your out-of-pocket expenses (Co-Insurance) up to a set amount called your Out-Of-Pocket maximum. After which your insurance company pays all eligible expenses for the remainder of the year.