I have had an HSA account for the last few years. I used to work for Giant Bicycle USA which is a group of around 100 great people, but since most of us ride bikes regularly, you can probably guess that there are a good number of people who break collar bones, arms, hands and wrists; and separate shoulders. This means that it is hard to keep coverage at an affordable rate. The management at Giant USA worked with a good insurance company to figure out what most people would think is an unconventional solution. They gave us the option of a high deductible plan and then the company contributed a good amount of money in an HSA account. What I did was kept my insurance payment the same as it was before, but I paid a lower premium than before and the difference I contributed to my HSA along with the company contribution. After a few years, I had enough in the account to cover the deductible and the out of pocket max for 1 year. It works great for healthy families that don’t go to the doctor except for check-ups. So, with all that said, what is a Health Savings Account?
A Health Savings Account (HSA) is an account that is very similar to a 401k or an IRA except the money can only be used for medical expenses. So, the money you contribute is either tax deductible on your taxes or, if you are contributing through your company benefits, it is taken out pre-tax. The big difference between a 401k/IRA and a HSA is that 401k/IRA withdrawls are taxed and HSA withdrawls are NOT taxed. So, the money going in is not taxed and the money coming out is not taxed as long as it is used for medical expenses. The contribution limits for 2013, along with other HSA coverage info, are:
The 55+ Contribution in the table means any one 55 or over can contribute $1000 over the contribution limit per year.
In order to contribute to HSA, you must have a HSA compatible plan. This type of plan is a high deductible plan that does not have co-pays. Every insurance carrier has plans that are specifically compatible with HSA’s. With the Affordable Care Act, there will be plans that are HSA compatible.
There is a little known way to do a one time contribution to an HSA. If you have a good amount of money in an IRA, you can also do a one time transfer from your IRA into a HSA up to the yearly contribution limit. This is a little known feature. This can be very valuable way to initially fund your HSA or if you deplete your HSA due to a health issue, it could be a good way to restore it.
Choosing the best HRA for your needs is also very important. Fees, unless your company is covering your HSA fees, can eat into your balance over time. There are HSA’s that do not charge a monthly fee once you get your account to a certain balance. Also, as your HSA grows, you have the option to invest the money in your account to help it grow faster.
Please let me know if you have any questions about HSA’s or any other issues regarding health insurance. More to come…