If you are like an increasing number of Americans, there is a good chance you have a Health Savings Account, or HSA, as part of your health insurance benefits. But understanding how your HSA works can make a huge difference in getting the most out of your benefits.
First, it’s important to know that an HSA is an account where you can save funds to be used for healthcare-related expenses. In order to contribute to your HSA, it must be paired with a High Deductible Health Plan (HDHP). If you have benefits through your job, your HDHP and HSA were likely set up together, but check with your employer to be sure.
One of the biggest benefits to having an HSA is that the contributions to your Health Savings Account via payroll deductions are tax-free. In addition, you will not pay tax on the distribution of the funds as long as they are used for qualified medical expenses. This means the money you earn and save goes further when used to pay for your healthcare needs. Both you and your employer can contribute to your HSA each year, but combined, your contributions must not exceed the annual limits set by the IRS. In 2021, the contribution limit is $3,600 if you are enrolled on a self-only plan or $7,200 if you are enrolled on a family plan. These limits are up $50 and $100, respectively, from the 2020 limits.
Another critical thing to know about your HSA is that the funds are yours to keep and roll over each year, as opposed to an FSA plan where the funds are “use it or lose it”. If you later change health insurance plans or even change jobs, your Health Savings Account funds are still yours, although your ability to contribute to the account may change. Additionally, most HSA administrators allow you to invest at least some of the funds in your account. This can be a great supplement to your current retirement savings plans and you should check with your HSA administrator for details.
Most people know that HSA funds must be spent on qualified medical expenses like doctor visits or prescription drugs. But recently the CARES Act expanded HSA eligible purchases to include over-the-counter medications without a prescription and menstrual care products. This adds another excellent benefit to having a Health Savings Account.
Understanding how your Health Savings Account works is the first step to getting more out of your healthcare dollars.
The team at Capital Benefit Services can help you find solutions for you and your employees. If you’d like to know more about HSAs contact Capital Benefit Services at 425-641-8093.