Health savings accounts (HSA) are a type of bank savings. But unlike your standard savings which may serve as your emergency fund or vacation fund, the money in this account is only used to pay health care expenses. Why a savings account designated for health care costs?
There are different types of health insurance plans. And while some may have a low-deductible health plan with excellent coverage, others aren’t as fortunate. Insurance premiums are based on many factors, such as the chosen deductible and coverage. Some employees are responsible for their own health care expense. To keep health insurance affordable, they often go with the cheapest premium, even if this means a higher deductible.
The deductible is a set amount a person spends before his insurance pays any medical expenses. A health savings account was created to help those with a high deductible health plan. They can save for future medical expenses, and since they’re spending their own money, this forces them to use their health care dollars wisely.
Setting up a health savings account is simple, and if you’re eligible, this account can financially prepare your family for future medical costs. The money you set aside can be used to pay for office visits, annual physicals, prescription medication, dental work, eye exams and other costs.
- Determine eligibility. Health savings accounts aren’t right for everyone. To qualify, you must have a qualifying high deductible health insurance plan. As of 2013, the minimum annual deductible to qualify for an HSA is $1,250 for individuals and $2,500 for families. The state you live in must accept health savings accounts, and if you’re covered by a second health insurance policy, this policy must also be a high deductible plan.
- Review your finances. To benefit from an HSA, you have to deposit cash in this savings account. The IRS limits how much you can contribute annually to your account – $3,100 for individuals and $6,250 for families. Devise a strategy for saving money and building your medical fund. Your employer may offer payroll deductions, or contribute to a employee-sponsored HSA.
- Open an HSA through your employer. If your employer covers your health insurance expense, a high deductible plan may be your only option. Since these plans only cover major medical expenses, some employers pair high deductible plans with an HSA, giving employees the opportunity to open an account when they enroll in the health plan.
- Find an HSA on your own. Just about every bank or credit union offers an HSA. If you can’t open an account through your employer, check with your bank. The bank will issue a debit card attached to the savings account, making it easier to pay for qualified medical expenses. Set up your account online or visit a branch in-person.
- Check competitor fees. You don’t have to open an HSA with the bank that holds your checking and regular savings account. Health savings accounts have fees, such as maintenance fees and annual fees. If you’re not careful, these fees can eat at your savings and reduce how much you have for medical expenses. Check with several banks and compare fees before opening an account.