So what's the deal with HSAs?

Health plans

What is an HSA?

Health Savings Accounts (HSAs) go hand-in-hand with high-deductible health plans (HDHPs). If you have an HSA, you can save money in an HSA before taxes and then use that money to pay for certain eligible health care expenses. Some people also use HSAs to save for retirement as those funds can be used without penalty to pay for living expenses.

How does an HSA work?

You can also use an HSA if you have an HDHP. These plans tend to have the lowest monthly premiums of all health plans because the deductible is so high.

When you make contributions to an HSA, you don’t pay taxes on the money that goes in. The maximum amount that can be contributed each year has increased for 2020 - $50 for individual coverage and $100 for family coverage - raising the limits to $3,550 and $7,100, respectively. That means a person who falls into the 28% tax bracket could potentially save just short of a grand ($994) using an HSA.

The other benefit is that you don’t pay taxes when it’s time to take money out of your HSA to pay for qualifying health expenses. Some eligible expenses may be items your plan doesn’t cover, including services you pay for before you’ve reached your plan’s deductible. Even after reaching your deductible, funds from an HSA can be used to pay copays, coinsurance, and more.

HSAs can also be used to pay for the medical expenses of your spouse, children, or other family members. Anyone who is a part of your “tax household” is eligible and they aren’t even required to be covered by your HDHP.

Are HSA tax breaks a thing?

HSAs can offer major savings benefits for health care costs but they also provide great tax benefits. First and foremost—you pay no taxes on the money you contribute to the HSA or on the money you take out to pay for eligible health-related expenses (penalties apply to funds taken out and used for non-eligible expenses). You can earn tax-free interest on money in your HSA account and could potentially invest that money. Money in your HSA doesn’t go away at year-end; instead, it gets rolled over and continues to be accessible by you. When you reach age 65, HSA funds become available for you to use in any way without paying a penalty. Any money that is used for eligible health-related expenses is still tax-free as well.

What should I know about HSA-qualified HDHPs?

To find an HDHP that qualifies for an HSA, be sure the deductible is at least $1,400 for singles and $2,800 for families in 2020. HDHPs also have limits on the maximum out-of-pocket amount. HSA-qualified plans have maximum out-of-pocket limits that are lower than the maximum out-of-pocket for other plans under the ACA. In 2020, HSA-qualified plans have a maximum out-of-pocket of 6,900 for individuals and $13,800 for families. The ACA dictates that other plans have a maximum out-of-pocket of$8,150 for individuals and $16,300 for families.

Also, be sure to note the difference between an actual HDHP and other plans that simply have high deductibles. HDHPs only cover preventive care prior to the deductible being met. In other words, a plan that has a $5,500 individual deductible doesn’t fall into the HDHP category if it allows copays for office visits prior to meeting the deductible. True HDHPs require any non-preventive care costs to be paid by the enrollee until the deductible is met.

Other ways to save

In addition to HSAs, there are other ways to save when it comes to health insurance. Decent offers three different health insurance plans specially designed for the self-employed. All three plans — the Pathfinder Bronze Plan, Lonestar Bronze Plan, and Trailblazer Silver Plan — offer free primary care and run below market rate when it comes to premiums.

Each of these plans is considered ACA compliant, so pre-existing conditions are accepted. Premiums that run 20-40% cheaper than traditional plans make these an appealing option for those looking for an option that doesn’t break the bank.

If you want to learn more, get a free quote today.

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