Health Savings Accounts (HSAs) 101

Health savings accounts (HSAs) are like personal savings accounts, but the money in them is used to pay for health care expenses only. You — not your employer or insurance company — own and control the money in your health savings account. HSAs and high deductible plans were created as a way to help control health care costs. The idea being that people will spend their health care dollars more wisely if they are spending their own money. To be eligible to open an HSA, you must have a special type of health insurance called a high-deductible plan.

What is a high-deductible plan?

As its name implies, it's a health insurance plan that carries a high deductible.

Deductible - the amount of money you have to pay for your health care each year before your insurance starts paying for care.
 

While the deductible is high with this type of plan, the premium is typically lower.

Premium - The money you pay the insurance company to buy the plan. You usually pay this monthly, or every pay period if you receive coverage through your employer.
 

You can use your HSA to pay deductible expenses, as well as copays and other health care expenses that are not covered.

Copayment – Also known as a copay, is a fixed amount (for example, $15) you pay for a healthcare service, usually at the time you receive service

What are some potential advantages of health savings accounts?

  • You decide how much money to set aside for health care costs, keeping in mind there is an annual maximum.
  • You control how your HSA money is spent. You can shop around for care based on quality and cost.
  • Your employer may contribute to your HSA, but you own the account and the money is yours even if you change jobs.
  • Any unused money at the end of the year rolls over (stays in your account) to the next year.
  • You don't pay taxes on money going into your HSA. You also don’t pay taxes on money going out of your HSA so long as you are paying for qualified health care costs.

What are some potential disadvantages to health savings accounts?

  • Illness can be unpredictable, making it hard to accurately budget for health care expenses.
  • Information about the cost and quality of medical care can be difficult to find.
  • Some people find it challenging to set aside money to put into their HSAs. People who are older and sicker may not be able to save as much as younger, healthier people.
  • HSAs are not available to people over 65; but funds in an existing HSA can be used to pay Medicare premiums.
  • Pressure to save the money in your HSA might lead you to not seek medical care when you need it.
  • If you take money out of your HSA for nonmedical expenses, you'll have to pay taxes and a take a penalty on it.

Who can set up an HSA?

Although WINhealth offers high deductible plans that are HSA eligible, we are unable to set up the HSA account for you. Your employer may offer an HSA option or you can start an account on your own through a bank or other financial institution. To qualify, you must be under age 65 and carry a high-deductible health insurance plan. This high-deductible health plan must be your only health insurance — you can't be covered by any other health insurance. However, having dental, vision, disability and long-term care insurance doesn't disqualify you from having an HSA.