What is a Health Savings Account?
A health savings account, or HSA, is a special type of savings account that is given favorable tax treatment by the Internal Revenue Service. A health savings account can make medical care more affordable by allowing for you to pay for the costs of medical care with pre-tax monies. This essentially means that the government subsidizes the costs of the medical care. You can also enjoy the tax-free growth that occurs in your health savings account. However, you will need to choose an eligible Texas insurance policy to accompany your health savings account.
Health Savings Accounts and High Deductible Health Insurance
Health savings accounts are purchased in conjunction with high deductible health insurance. High deductible health insurance is a type of insurance that offers coverage that kicks in only in the event of a significant medical expense or serious or catastrophic illness. It doesn’t cover standard, basic medical expenses such as doctor’s visits or prescriptions, but it does protect you from financial ruin if you become seriously injured or ill and you need to have expensive medical treatment.
Essentially, when you purchase high deductible health insurance, you may have a $5,000 deductible (or some other deductible equal to several thousand dollars). You will not receive any coverage from your insurance company for medical expenses until after you’ve met the deductible. In this example, you’d have to spend $5,000. After you’ve spent your deductible amount during the designated period (usually within a year), then the insurance company starts to pay.
Your health savings account will allow you to pay for the medical expenses that you incur when you have a high deductible plan. So, if you had a $3,000 high deductible plan, for example, you could put $3,000 in your health savings account. You’d then pay for your medical costs with that tax-free money.
High deductible health insurance plans are a good option for people who are relatively healthy and/or young and who don’t have and aren’t likely to have a lot of annual medical expenses. They provide protection from disaster and are significantly less expensive than standard health insurance plans with lower or no deductibles. Health savings accounts make these high deductible health insurance plans even more attractive by lowering the cost of routine medical care due to the tax advantages of the accounts.
What Happens to the Money in the Health Savings Account?
The money in the health savings account can stay in the account unless or until you need it for medical expenses. You are permitted to invest up to a set limit each year in the account and enjoy the tax advantages of making the investments. You can then take out and spend the money on qualifying medical expenses.
If you do not spend the money, then it can stay in the health savings account year after year. In many cases, you can even invest the money to try to help it grow, and your investment will also be tax free. Eventually, if you do need the money for your medical costs and expenses, you will then have the cash available there.
Health savings accounts make high deductible health plans a great deal for Texas health insurance. Contact Selected Benefits to learn more about qualifying high deductible plans and about how health savings accounts can work for you.