Health Savings Accounts (HSA) are tax-free savings accounts that you can open if you have a Qualified High Deductible Health Plan (HDHP). With an HSA, you save money by having a high deductible insurance plan with lower premiums. In some cases the insurance premiums are up to 50% less than the typical low-deductible insurance plans. The HSA can then be used to reimburse you for qualified expenses until you’ve met your deductible and then your insurance coverage takes over.
A health savings account is a portable account that you keep with you even if you change jobs, change your medical coverage, become unemployed, move to another state or change your marital status. An HSA provides you with a tax deduction when you contribute to your account. You also receive tax-free earnings through investment and tax-free withdrawals for qualified medical expenses.
There are two components that make an HSA:
- You have a qualified high deductible health plan
- You open a Health Savings Account.
Contributions can be made to your HSA each year that you are eligible. These contributions can be made by you, your employer, or both.
Once a contribution has been made to your account, you can start to use your HSA to get reimbursed for your qualified expenses. One thing to keep in mind is that you can only withdrawal the amount of money which is already in the account. HSA funds can be used to cover health insurance deductibles, coinsurance, out of pocket medical expenses, dental expenses, and vision expenses. The funds can also be used to pay health insurance premiums during any period of unemployment.
The contribution limits change annually. Here are the current limits.
For individuals age 55 and up, "catch-up" contributions are allowed. Contributions must stop once an individual is enrolled in Medicare.