What is a Health Savings Account HSA?
Health Savings Account HSA is the abbreviation of Health Savings Account, which can be used to save money on medical expenses and reduce the taxable salary, but not everyone can or should open HSA medical insurance.
Who qualifies for an HSA?
If the insured chooses a high-deductible health insurance plan (HDHP) and is certified by the government, they will be eligible for an HSA.
It’s important to note, however, that these high-deductible health insurance plans are reassessed each year by the IRS to assess minimum deductibles and maximum out-of-pocket payments.
Not all HDHPs are eligible to open an HSA. If the insured wants to open an HSA, they need to pay attention to whether the plan is marked “HSA-eligible” when purchasing a medical insurance plan.
How does an HSA work?
Some employers that offer high-deductible health insurance plans for their employees also offer HSAs, but if they don’t, employees can open their own HSA accounts if the employee’s health insurance plan is eligible.
Policyholders can decide how much money they put into the HSA each year, but only up to the government-mandated ceiling. If an HSA is provided directly by the insured person’s unit, there is an option to automatically deposit a portion of an individual’s wages directly into the HSA.
After opening the HSA, the insured will get a savings card or check tied to the balance of the HSA account, and then use the balance in the account to pay for eligible medical expenses, including deductibles, doctor visits, and medicines The insured is required to pay a fixed fee (copays), and the insured bears part of the medical expenses (coinsurance) proportionally.
It should be noted that if the health insurance plan selected by the insured is the premiums file, then the funds from the HSA will not be used to pay for medical expenses.
The balance of the HSA account will be automatically accumulated every year, so there is no need to worry about the loss of the balance. After the age of 65, the assured will join the Medicare plan, and then there is no need to deposit money in the HSA, but the balance in the account can still be used for The out-of-pocket portion of medical expenses.
However, if the policyholder uses the balance of the HSA to pay for ineligible expenses, the portion of that expenditure will be subject to an additional income tax payment and a penalty if the policyholder is under the age of 65.
What are the tax advantages of an HSA?
1. If the HSA is opened by the employer, the employee can enjoy the pre-tax income deposited in the account.
2. If an individual opens an HSA, then the individual will enjoy a tax-free policy, that is, the individual will not need to pay tax on the appreciation of the account, and will not need to pay tax when the deposit is withdrawn to pay for medical expenses.
3. HSA policyholders will enjoy a lighter tax burden. If the policyholder has an annual income of $40,000, of which $3000 is invested in the HSA, only $37,000 of income is taxed.
What investment plans does the HSA have?
Another benefit of an HSA is that the funds in the account can be used for investments, such as mutual funds, stocks, and other investment channels. Depending on the policyholder’s investment preferences, different investment management companies can help set up investment plans.
If the policyholder plans to invest the balance of the HSA account in the future, it is recommended to find an HSA company that allows investment and offers a low-fee investment plan (bank, credit union, health insurance company, investment broker, IRS- certified investment management agency), and consult a fee-based financial advisor first.