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Health Savings Account

A health savings account (HSA) is a savings account maintained to help you pay for current or future medical expenses. There are certain advantages to putting money into an HSA, including favorable tax treatment.

Who Can Have an HSA?

You can have an HSA if you:

  • Have coverage under an HSA-qualified, high deductible health plan (HDHP)
  • Have no other health coverage (certain types of insurance, such as specific injury or accident, disability, dental care, vision care or long-term care, are permitted)
  • Are not enrolled in Medicare
  • Cannot be claimed as a dependent on someone else’s tax return

Contributions to your health savings account can be made by you, your employer or both. However, the total contributions are limited annually. Contributions to an HSA are tax-deductible (even if you do not itemize deductions).  Your employer may allow you to make your HSA contributions as tax-free salary reductions.

Contributions to the account must stop once you are enrolled in Medicare. However, you can still use your HSA funds to pay for medical expenses tax-free.

WHAT IS AN HDHP?

In order to be eligible to have an HSA, you must be covered by a high deductible health plan (HDHP). An HDHP is a health insurance plan that has a higher deductible than a normal health insurance plan.  The deductibles under an HDHP must be at least:

  • Single coverage: $1,400 for 2022 ($1,500 for 2023)
  • Family coverage: $2,800 for 2022 ($3,000 for 2023)

In addition, annual out-of-pocket expenses under an HDHP (including deductibles, copays and coinsurance) cannot exceed the following limits:

  • Single coverage: $7,050 for 2022 ($7,500 for 2023)
  • Family coverage: $14,100 for 2022 ($15,000 for 2023)

In general, an HDHP’s deductible must apply to all medical expenses (including prescriptions) covered by the plan. However, plans can pay for preventive care services on a first-dollar basis. Preventive care can include routine prenatal and well-child care, child and adult immunizations, annual physicals, mammograms and more.

Read more about 2023 Health Plan Limits here.

Health Savings Account Contributions

You can make a contribution to your HSA each year that you are eligible. You can contribute no more than:

  • Single coverage: $3,650 for 2022 ($3,850 for 2023)
  • Family coverage: $7,300 for 2022 ($7,750 for 2023)

Individuals ages 55 and older can also make additional “catch-up” contributions of up to $1,000 annually.

Determining Your Contribution

Your eligibility to contribute to an HSA is determined by the effective date of your HDHP coverage. Individuals who become eligible to contribute to an HSA in the last month of a taxable year are allowed to contribute an amount equal to the annual HSA contribution amount for that taxable year.  However, they must remain covered by the HDHP for at least the 12-month period following that year.  Contributions for a given tax year can be made as late as April 15 of the following year.

Using Your HSA

You can use money in your health savings account to pay for any qualified medical expense permitted under federal tax law. This includes most medical care and services, dental and vision care.

Generally, you cannot use your HSA to pay for medical insurance premiums, except specific instances, including:

  • Any health plan coverage while receiving federal or state unemployment benefits
  • COBRA continuation coverage after leaving employment with a company that offers health insurance coverage
  • Qualified long-term care insurance
  • For HSA holders who are age 65 or older, any deductible health insurance (for example, retiree medical coverage) other than a Medicare supplemental policy.

You can use your HSA to pay for medical expenses for yourself, your spouse or your dependent children, even if your dependents are not covered by your HDHP. Any amounts used for purposes other than to pay for qualified medical expenses are taxable as income and subject to an additional 20% penalty. Examples include:

  • Medical procedures and expenses not considered qualified under federal tax law
  • Health insurance premiums, unless specifically described above
  • Medicare supplement insurance premiums
  • Expenses not health-related

After you turn 65, the 20% additional tax penalty no longer applies. If you become disabled and/or enroll in Medicare, the account can be used for other purposes without paying the additional penalty.

Advantages of Health Savings Accounts

SecurityYour HSA can provide a buffer for unexpected medical bills.

AffordabilityIn most cases, health insurance premiums for an HDHP will be less than premiums for a health insurance coverage with a lower deductible.

FlexibilityYou can use your HSA to pay for current medical expenses, including expenses that your insurance may not cover, or save your funds 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

SavingsYou can save the money in your HSA for future medical expenses and grow your account through investment earnings.

Control You make the decisions regarding:

  • How much money you will put in the account
  • Whether to save the account for future expenses or pay current medical expenses
  • Which medical expenses to pay from the account
  • Which financial institution will hold the account
  • Whether to invest any of the money in the account
  • Which investments to make

PortabilityAccounts 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

OwnershipFunds 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

What Happens to My HSA When I Die?

If you are married, your spouse becomes the owner of the account and can use it as if it were his or her own HSA.

If you are not married, the account will no longer be treated as an HSA upon your death. The account will pass to your beneficiary or become part of your estate (and be subject to any applicable taxes).

Opening Your Health Savings Account

Banks, credit unions, insurance companies, and other financial institutions are permitted to be trustees or custodians of an HSA.

Other financial institutions that handle IRAs are also automatically qualified to establish HSAs.

Learn More

To learn more about health savings accounts, contact a health professional at RMC Group today 239-298-8210 or rmc@rmcgp.com.

 

This Know Your Benefits article is provided by RMC Group and is to be used for informational purposes only and is not intended to replace the advice of an insurance professional. © 2020-2021 Zywave, Inc. All rights reserved.