Health spending accounts (HSAs) are a great way to save money on healthcare and medical expenses. They can help you reduce out-of-pocket costs and make budgeting for medical procedures such as surgeries more accessible for hospital stays.
This article will provide an overview of health spending accounts and explain how to use them effectively. We’ll discuss the pros and cons of HSAs so you can decide if one is right for you!
What is a Health Spending Account (HSA)?
A Health Spending Account (HSA) is an account that can be used to pay for eligible medical expenses. The funds in the account can be used to cover a wide range of medical expenses, including doctor visits, prescription medications, and other outlays. They are also exempt from federal income tax.
If you have an HSA account, keeping track of your spending is essential so that you don’t overspend and incur penalties. You can use a software program or app, such as Mint or YNAB, to help you track your spending. Alternatively, you can simply keep track of your spending manually.
Once you’ve incurred eligible medical expenses, you can submit a claim to your HSA administrator for reimbursement. You will need to provide documentation of your expenses, such as receipts or Explanation of Benefits forms from your insurance company. Once your claim is approved, the money will be deposited into your HSA account within a few days.
How does an HSA work?
You can use an HSA to pay for deductibles, copayments, and other out-of-pocket medical expenses.
Eligibility for an HSA
To be qualified for an HSA, you first enroll in a high-deductible health plan (HDHP). As of 2019, the minimum annual deductible for an HDHP is $1,350 for an individual and $2,700 for a family. The maximum out-of-pocket expenses (including deductibles, co-payments, and coinsurance) cannot exceed $6,750 for an individual and $13,500 for a family.
If you are qualified for an HSA, you can contribute up to $3,500 as an individual or $7,000 as a family on a tax-free basis. If you are 55 or older, you can contribute an additional $1,000 tax-free.
How to fund an HSA
If you’re looking to take advantage of a Health Spending Account (HSA), there are a few things you need to know first. One of the most important is how to fund it.
Here are a few options:
- Employer contributions – Many employers offer HSA contribution plans as part of their benefits package. If your employer offers this, it’s usually the easiest way to fund your HSA.
- Personal contributions – You can also contribute to your HSA through payroll deductions or by making direct deposits from your checking or savings account.
- Transfers from other accounts – You may be able to transfer money from other accounts, such as a Flexible Spending Account (FSA) or Health Reimbursement Arrangement (HRA), into your HSA. Be sure to check with your plan administrator to see if this is an option for you.
- Loans – In some cases, you may be able to take out a loan to help fund your HSA. This should be considered a last resort, as you’ll have to repay the loan with interest.
Once you’ve funded your HSA, you can use it to pay tax-free for eligible medical expenses (no medical exam is required)!
How to use HSA funds
If you have a High Deductible Health Plan (HDHP), you’re probably eligible to open and contribute to a Health Savings Account (HSA). An HSA, a tax-advantaged account, can be used to pay for certain medical expenses.
Here’s how it works: You contribute pre-tax money to your HSA, which can be used to pay for qualified medical expenses. The funds in your HSA roll over from year to year, and if you leave your job, you can take your HSA with you.
Some things to keep in mind:
- Only HDHP members are eligible to contribute to HSAs.
- You must be enrolled in an HDHP to be eligible for an HSA.
- The amount you can contribute to your HSA is determined by the type of HDHP you have.
For example, in 2020, someone with self-only coverage under an HDHP could contribute up to $3,550.
How to maximize your HSA benefits
If you have a Health Spending Account (HSA), you may wonder how to get the most out of it. Here are a few tips:
- Use your HSA to pay for eligible medical expenses. These include doctor’s visits, prescription drugs, and dental care.
- Keep track of your spending. This will help you stay within your budget and maximize your HSA benefits.
- Save your receipts. This will come in handy if you ever need to file a claim with your HSA provider.
- Use an online tool or app to help you keep track of your HSA balance and spending. This can be a beneficial way to stay on top of things and ensure you get the most out of your account.
- Check with your HSA provider about ways to save on medical expenses. They may offer discounts on specific services or products to help you stretch your dollars further.
Common misconceptions about HSAs
A few common misconceptions about HSAs tend to trip people up. Here are the most common myths:
HSAs are only for high-deductible health plans: While it’s true that you can only contribute to an HSA if you have a high-deductible health plan, anyone can open and use an HSA, regardless of what type of health insurance they have.
HSAs are only for medical expenses: HSAs can be used for a wide range of qualified healthcare expenses, including dental and vision care, prescription drugs, and even some over-the-counter medications.
This is false: You must use up all of your HSA funds each year. Your HSA funds roll over yearly, allowing you to save for larger medical bills.
HSAs are only for people with good health: Again, this is not true! Anyone can open and use an HSA, regardless of their health status.
How HSAs differ from Flexible Spending Accounts (FSAs)
You can utilize an HSA account to pay for healthcare expenses. An FSA is an account your employer can set up for you to pay for healthcare expenses. With an HSA, you own the account, and no one else can touch the money in it. With an FSA, your employer can decide how much money you spend each year.
Conclusion
A Health Spending Account is a great way to manage your health costs and ensure you make the most of your benefits.
By taking advantage of these accounts, you can easily cover some or all of the medical expenses associated with maintaining good health. Consult a qualified financial advisor before deciding how to use an HSA. With these tips in mind, you should have no problem getting started.