The world of health insurance can seem like a mystery. There are acronyms and rules that most of us have to learn to use the system wisely. Deductibles, pre-existing conditions, and co-pays are just some of the things that can cost you dearly but that you have to understand as part of the process of using your insurance. However, there is one thing in the insurance world that provides you with huge benefits—but you may not know about it. Welcome to the world of the health savings account (HSA). Here’s what you need to know about HSAs and how they can save you, big time.
How can a Health Savings Account Benefit You?
What is an HSA?
The keyword in HSA is “savings”—and that’s exactly what these accounts can help you do. An HSA is tied to a type of insurance called a high-deductible health plan (HDHP) and it’s a savings account that allows you to write off the money you put into it. The benefit of an HDHP is the lower premium you pay over other types of insurance models. There is, however, a higher deductible, which is the amount you pay out-of-pocket for your healthcare. The HSA is designed to encourage and allow you to save up your deductible in the most efficient way possible.
Here’s how it works:
- The HDHP is a type of insurance offered by all the major companies (Blue Cross, Anthem, and so on).
- The HDHP has a lower premium that you pay for the policy compared to other types of insurance.
- However, there is a higher deductible. The deductible is a yearly cap on the amount of money you pay out-of-pocket for healthcare. You pay the deductible amount upfront before your insurance policy kicks in and pays the doctors.
- The HSA is a tax-deductible savings account that lets you put away money in advance to pay that deductible. It can also be used for things that may not be covered by your health insurance, such as eyeglasses or medications.
Why would someone select an HSA, which adds a layer of complexity to your insurance, over a traditional policy? Here’s why.
What Are the Benefits of an HSA?
The contributions you make to your HSA are tax-deductible. This lowers your taxes. When you sign up for your HSA, you’re given a debit card attached to the account. When you go to the doctor or go get a prescription, you use that card which pulls money from the HSA. You can only save a certain amount into the account each year (it changes every year), but the benefits include:
- Saving on taxes.
- Having the money on hand to pay your out-of-pocket healthcare expenses.
- You can earn interest in this account which is tax-free
- You own this money. If you don’t use all the funds in the account this year, that money stays in savings. That means this could eventually be a retirement nest egg for you and your family.
There are few if any downsides to having an HSA. Even if you can take just a few dollars each month and put it into your account, this is an investment that pays off in the long run.
Would You Use a Health Savings Account?
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