To save money on health insurance costs, many companies are increasingly offering high-deductible health insurance plans to their employees. If you work for a company that has taken this approach, a health savings account is a very effective tool to cover medical expenses and save for the future.
What is a health savings account?
Health savings accounts – or HSAs – are like a personal savings account designed specifically for deductibles or other health care expenses. You – not your employer or an insurance company – own and control the money in the account, and you also determine how much you want to pay into the account on a regular basis. Many financial institutions offer HSA savings products, including MidWestOne Bank.
To be eligible to open an HSA, you must have a special type of health insurance called a high-deductible health plan (HDHP) that has a minimum deductible set every year by the federal government. The 2014 minimum deductible is $1,250 for individual and $2,500 for family coverage. You also cannot be enrolled in Medicare or be claimed as a dependent on someone else’s health insurance plan.
What are the benefits of a HSA?
There are three key tax benefits to a HSA:
- The money you pay into the account is tax deductible.
- Funds in the account grow tax-free.
- You don’t pay taxes on your withdrawals, as long as they are used for a qualified medical expense.
In addition, an HSA can help you with retirement funding. After you turn 65, you can use money you withdraw for things other than medical expenses without incurring a penalty. You can, for example, use your funds to finance living expenses.
How much money can I contribute?
Contribution limits are set by the government on an annual basis. In 2014, you can make pretax contributions of up to $3,300 a year if you have individual medical coverage, or up to $6,550 if you have family coverage. People above the age of 55 can add catch-up contributions at $1,000 per year.
How can I use the money in the account?
You can use the money in your HSA account for out-of-pocket medical expenses such as your deductible, co-payments for doctor’s visits or prescription drugs or vision and dental care that may not be covered by your insurance.
As opposed to a flexible spending account, you don’t have to use the money by the end of the year. This means it can grow tax-deferred in your account for later use. Also – there is no deadline for making a withdrawal. In other words, you can reimburse yourself in the future for medical costs you incur now, as long has you have records of your past bills.
Why are HSAs more popular now?
One of the big drivers for the increasing popularity of HSA accounts has been the rising cost of health care and the added motivation it gives patients when selecting where to have their medical procedures done.
What to look for when selecting an HSA
Convenience is a big factor when selecting an HSA account. This will make it easier for you to set funding limits, determine what your balance is and make withdrawals. MidWestOne’s health savings account comes with a VISA check card that can be used at the point-of-purchase or point-of-care to pay directly for medical products or services. This is far easier than filling out disbursement or reimbursement forms, which some older health savings accounts require.
In addition, MidWestOne’s HSA can be accessed directly through the bank’s online banking and mobile banking platforms, which makes it easy for you to monitor your account and make adjustments when needed.
If you have a high-deductible health insurance plan or are considering getting one to save money, HSAs are a great way to save for future medical expenses.