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What is an HSA?

Medical expenses are major headaches for the American consumer. Healthcare procedures can cost thousands and the only way to afford the price is with medical insurance. Coverage helps but the deductibles and premiums still gnaw on the checkbook. It would be great if there were a way to save for the medical bills reasonably. Fortunately, there are Health Savings Accounts (HSAs).

The Fundamentals

Health Savings Accounts were created by the Medicare Prescription Drug, Improvement, and Modernization Act. They replaced the medical savings account system. An HSA not only helps an individual save for healthcare expenses but also can reduce taxable income.

Anyone who is enrolled in a high deductible health insurance plan (HDHP) qualifies for an HSA. It is essential, however, that the HDHP meets the definition of the Internal Revenue Service. That interpretation includes a minimum deductible and the maximum amount that a plan member spends out-of-pocket. The plan must be “qualified” by the Internal Revenue Service.

The plan member decides what that year’s contribution will be to the HSA account; this cannot exceed the government mandates. An attractive feature of the HSA is that the balance will roll over from year to year. Although you can no longer contribute to an HSA after you have enrolled in Medicare, you can use the existing balance to pay out-of-pocket medical expenses. The maximum contributions established for 2021 are $3,550 for an individual and $7,100 for families. The minimum HDHP deductibles are $1,400 for individuals and $2,800 for family, and the maximum out-of-pocket amounts of the HDHP is $6,900 for individuals and $13,800 for families.

There is a Tax Benefit

The tax advantages of an HSA make it an attractive benefit.

  1. HSA contributions, if done through an employer, are pretax dollars.
  2. If an individual has private HSA, those HSA contributions are tax-deductible.
  3. Taxes are not paid on the financial growth of an HSA.
  4. Any withdrawals made to cover eligible expenses are not taxable.

To be clear, HSA contributions are not going to be counted towards the burden of taxes. An individual is going to be taxed as if that person made less money. For example, if an individual makes $50,000 a year and contributes $3500 in 2021, the amount of taxable income will be $46,500. It is an excellent inducement to contribute as much as possible to an existing HSA account.

It is Yours; You Get to Keep It!

A final point about an HSA that makes it appealing is its portability. If you are enrolled in an HSA through an employer and leave that organization, you are allowed to take your HSA account with you.

You can also open your own HSA account if that is what you want to do. The caveats are that you must be enrolled in a qualified HDHP and you cannot contribute to an HSA if you are already on Medicare.

A smart consumer will invest in an HSA and find HDHP health insurance, as well. A professional’s advice, someone who is fluent in the health insurance language, makes the search easier.

A licensed health insurance agent can be your best friend when you are looking for the right policy. That professional understands health insurance and can search the market for the HDHP coverage that fits your needs. A registered agent is continuously upgrading his or her skills, and you will be working with a very knowledgeable person. 

The health insurance market is big and finding the right health insurance that also meets the Internal Revenue Service expectations might be a challenge. You can improve your chances of getting what you require if you allow a health insurance agent to assist you in finding good health insurance options.


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Mike from Columbus, Ohio
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