What Is an HSA Account and How Does It Work?
A health savings account, or HSA, is a tax-deductible savings account that is typically paired with a high-deductible health insurance plan (HDHP), which is a type of health insurance plan that has a lower monthly premium but a high deductible. HSA funds can be used at any time; however, you can only contribute to one if you have an HDHP.
In 2021, the annual minimum deductible for a qualified HDHP plan is $1,400 for individuals and $2,800 for families. The maximum out-of-pocket amount is $7,000 for individuals and $14,000 for families.1
Health insurance can help protect you from high medical costs when unexpected emergencies occur. Through planning and budgeting, many families may find it easier to cover some of their out-of-pocket medical expenses with HSA funds.
If you’re interested in an insurance plan with an HSA, contact HealthMarkets today. We can help you find the right plan for your needs with our FitScore® technology. Get started comparing plans today.
Is an HSA a Medical Savings Account?
Yes, an HSA is a medical savings account, not an insurance plan. You can have money put away in your HSA by setting aside that money yourself or by having it automatically withdrawn from your salary by your employer.
There are annual limits for HSA deposits. For 2021, these limits are $3,600 for self-only HDHP coverage and $7,200 for family HDHP coverage.2
This money is tax-deductible. As long as you use it for eligible health-related fees, you won’t have to pay taxes when you use it.
What Does an HSA Cover?
You can use your HSA to pay for a variety of medical services, according to the IRS’s Publication 502. It is important to maintain records to demonstrate that your HSA distributions were used for qualified medical expenses, that those expenses haven’t been paid before, and that they haven’t been taken as an itemized deduction.
The services covered by an HSA can include:
- Alcoholism treatment
- Birth control pills
- Dental treatment, including X-rays, fillings, braces, and dentures
- Diagnostic devices
- Eye exams and surgery
- Long-term care
- Psychiatric care
- Prescription drugs
- Weight-loss programs
In 2020, the utilization of HSAs was expanded. On March 27, 2020, President Donald Trump signed the CARES Act into law.3 The intent of this legislation was to provide economic relief.
These updates include:4
- Telehealth – HDHPs with an HSA might provide pre-deductible coverage for telemedicine services through December 31, 2021.
- Over-the-Counter (OTC) Medications – HSAs can be used to purchase certain OTC drugs, including aspirin, allergy medications, and pain-related medications without a prescription from a physician.
- Menstrual Care Products – Menstrual products are considered qualified medical expenses for HSA payment or reimbursement.
You will be able to use your debit card for these expenses, as there will be no required claim reimbursement process.
Advantages and Disadvantages of an HSA
Advantages of an HSA
There are some potential advantages of HSA plans for individuals:
- You can decide how much money to set aside for your healthcare costs: This is important for families and individuals working within a tight budget. You can determine how much or little of your paycheck can be put directly into your HSA, with the total contribution limit depending on your HDHP coverage, age, date of eligibility, and the date your eligibility ends. Saving enough in your HSA can prevent you from dipping into other funds to pay for healthcare services.
- Your employer can contribute to your HSA, but the money is yours: You may be employed at a company that matches how much of your paycheck you set aside for HSA contributions. This also means the money your employer contributed is yours, even after you leave the company.
- Unused money in your HSA will be rolled over to the next year: This means that, even if you didn’t need to dip too deeply into your HSA, you still have those funds in your account next year when you re-enroll. Even if you cancel your plan or opt for a different type of plan, you can still use that money to pay for expenses indefinitely.
- Your HSA contributions are tax-free: As mentioned before, any contribution you or your employer makes is 100% tax-free. That means if you set aside $50 per paycheck to put into your HSA, all $50 will be added to your balance.
Disadvantages of an HSA
There are also some potential disadvantages of HSA plans for individuals:
- Unpredictable illnesses make it difficult to budget your healthcare expenses: No one expects to fall seriously ill or need hospitalization. Because of this, it can be difficult to budget out how much of your HSA balance should be used as a safety net and what can be used for a planned service (e.g., vision correction surgery). However, starting in the mid-2020s, more pricing information will become available.5
- Finding the cost of healthcare can be a challenge: Without knowing the cost of a particular medical service, it can be difficult to know how much you’ll have to pay through your HSA or out of pocket until you’re hit with the bill. This is especially true for unanticipated ER visits or emergency care.
- Saving money specifically for your HSA can be hard for families on a tight budget: For some families, it can be easier to manually set money aside for their HSA rather than having it automatically deducted from their paycheck. Additionally, older or sicker Americans may be unable to save as much money as younger, healthier people.
- It can feel easier to want to save up rather than spend: It may feel easier for some Americans to put off seeking medical care in efforts to save up more money in their HSA.
Can I Open a Health Savings Account on My Own?
Yes, you can open a health savings account on your own. By considering the advantages and disadvantages of HSA plans for individuals, you can determine whether it will work for you and your family’s unique health and budget requirements. Because high-deductible health plans (HDHPs) provide lower monthly premiums and a higher deductible, choosing a plan with an HSA option can be helpful for emergency situations.
However, for families who expect to visit a doctor or specialist multiple times a year for treatment, health plans like HDHPs may end up costing more out of pocket than the plan may be worth.
At HealthMarkets, we can simplify the process for you with our FitScore technology. With thousands of plans available nationwide, we can compare your unique needs to health insurance plans from more than 200 recognized insurance companies to find the right options for you.
Get your FitScore today, at no cost to you.
1. “Revenue Procedure 2020-32.” IRS.gov. Retrieved from https://www.irs.gov/pub/irs-drop/rp-20-32.pdf. Accessed April 14, 2021.
2. HealthCare.gov. Retrieved from https://www.healthcare.gov/high-deductible-health-plan/hsa-eligible-hdhp/ Accessed April 28, 2021
3. Whitehouse.gov. March 2020. Retrieved from https://trumpwhitehouse.archives.gov/briefings-statements/bill-announcement-93/
4. IRS. June 2020. Retrieved from https://www.irs.gov/newsroom/irs-outlines-changes-to-health-care-spending-available-under-cares-act
5. CMS. October 2020. Retrieved from https://www.cms.gov/newsroom/press-releases/cms-completes-historic-price-transparency-initiative
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