Health Savings Accounts help keep health costs in check

    What do gas prices and health costs have in common? They are both getting more and more difficult to afford.
    While we can’t do anything about the price to fill up the tank, there is something that we can do about paying for health care, and it starts with pairing a health savings account (HSA) with a high-deductible health plan (HDHP).
    An HSA is an account that you can put money into for future medical expenses.
    Any adult can contribute to an HSA, provided they have health coverage under a HDHP, have no other first-dollar medical coverage, are not enrolled in Medicare and cannot be claimed as a dependents on someone else’s tax return.
    There are many advantages to pairing an HSA with a HDHP
    Affordability – You can lower your health insurance premiums by switching to health insurance coverage with a higher deductible
    Security – Your high deductible insurance and HSA protect you against high or unexpected medical bills
    Flexibility – You can use the funds in your account to pay for current medical expenses, including expenses that your insurance may not cover, or save the money in your account for future needs, such as
    • Health insurance or medical expenses if unemployed
    • Medical expenses after retirement (before Medicare)
    • Out-of-pocket expenses when covered by Medicare
    • Long-term care expenses and insurance
Savings – You can save the money in your account for future medical expenses and grow your account through investment earnings.
Control – You make all the decisions about
    • How much money to put into the account
    • Whether to save the account for future expenses or pay current medical expenses
    • Which medical expenses to pay from the account
    • Which company will hold the account
    • Whether to invest any of the money in the account
    • Which investments to make
Portability – Accounts are completely portable, meaning you can keep your HSA even if you:
    • Change jobs
    • Change your medical coverage
    • Become unemployed
    • Move to another state
    • Change your marital status
Ownership – Funds remain in the account from year to year, just like an IRA. There are no “use it or lose it” rules for HSAs.
Tax Savings – An HSA provides you triple tax savings:
    • Tax deductions when you contribute to your account
    • Tax-free earnings through investment
    • Tax-free withdrawals for qualified medical expenses
Using Your HSA
    You can use the money in the account to pay for any “qualified medical expense” permitted under federal tax law. This includes most medical care and services, and dental and vision care, and also includes over-the-counter drugs such as aspirin. However, you can generally not use the money to pay for medical insurance premiums, except under specific circumstances.
    Contributions to an HSA can be made by you, your employer, or both. However, the total contributions are limited annually. What’s more, you can deduct any contributions you make on your federal income tax return.
    It should also be noted that you can use the money in the account to pay for medical expenses of your spouse or dependent children even if they are not covered by your HDHP.
Taxable or not?
    Any amounts used for purposes other than to pay for “qualified medical expenses” are taxable as income and subject to an additional 10-percent tax penalty. Examples include:
    • Medical expenses that are not considered “qualified medical expenses” under federal tax law (e.g., cosmetic surgery)
    • Other types of health insurance unless specifically described above
    • Medicare supplement insurance premiums
    • Expenses not medical or health-related
    After you turn age 65, the 10-percent additional tax penalty no longer applies. If you become disabled, the account can be used for other purposes without being taxed as income and without paying the additional 10-percent penalty.