Health Savings Account

In today’s climate of ever-increasing healthcare costs, more and more people are being offered the opportunity to join a health savings account (HSA). Many employers are offering them as options to the standard PPO and POS plans already in place. Self-employed individuals and retirees are also setting them up. Just how does an HSA work?

HSA accounts work best for people who believe their expenses will be either very high or very low. While self-employed individuals and retirees can set up their own HSA accounts, we’ll discuss the way they are used by those who sign up for them through their employer.

The employer sets the employee up in a high deductible health insurance plan and then establishes the health savings account. It doesn’t matter whether this plan is a PPO, an HMO, or a basic indemnity plan, but there are certain requirements. You cannot be covered by any other plan, you cannot be enrolled in Medicare, and you cannot be claimed as a dependent on someone else’s tax return (with exceptions for spouses).

A high deductible health insurance plan sets your minimum deductibles for self and family at $1,200/$2,400. Out-of-pocket limits must be less than $5,600/$11,200. Check with your plan administrator to learn the deductibles and out-of-pocket limits that are in effect at the time when you sign up.

There is no limit to who can contribute to your health savings account. Employers can contribute a sum into their employees’ accounts, and the employees can contribute to their own amounts. You can put money in your spouse’s account.

Your employer benefits when you sign up for an HSA account because he saves money on some of the routine taxes he pays. To entice employees to sign up, many of them are planting appreciable sums into the HSA accounts in the first year or sometimes in each year of membership. The employee also enjoys tax benefits, because his contributions can be taken as pre-tax dollars from his paycheck. And the employee can also earn interest on his HSA or invest it like a 401k.

There are some non-standard health insurance plans you can enjoy and still set up an HSA. If you have separate dental, vision, or prescription insurance (but not general medical coverage), you can join. If you have insurance for specific kinds of illnesses (for instance, if you have a policy just for cancer) you could still set up a health savings account. You can also participate in your employer’s wellness program or take advantage of the employee assistance program, if they are available. You can be eligible for VA benefits, but you must not have received such benefits within the past three months.

So once you’ve set up your HSA, what would you use it for? Generally, your high-deductible health insurance plan would be intended to cover routine physicals or testing. You could use your health savings account money to pay for office co-pays, prescriptions, eyeglasses, dental needs, over-the-counter medical necessities, and even transportation costs to and from your healthcare provider’s location. If you get laid off, you can use your HSA to pay the costs of your premium if you elect COBRA coverage.

Since many employers are motivated to sign up their employees for these types of accounts, ask your human resources director if someone from the insurance company can help you review your anticipated medical needs and decide whether a standard plan or a high-deductible health insurance plan with a health savings account is right for you.