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Some health plans offer a special savings account to help you set aside money for urgent or unexpected medical expenses.
This type of savings account is known as a Health Savings Account (HSA).
Medicare beneficiaries cannot currently contribute to or open new Health Savings Accounts.
A bipartisan bill in Congress may soon allow Medicare beneficiaries to open and maintain HSAs.
There are times when you may encounter an unexpected medical or healthcare expense. Your or a loved one may suddenly fall ill, or an accident may unexpectedly lead to a serious injury. Your health insurance may cover some, but not all, of the expense. How can you cover that expense?
If you’re covered by a qualifying high-deductible health insurance plan, you may have access to a special savings account that can help. These accounts are known as Health Savings Accounts, or HSAs. You may also see it referred to as a Healthcare Savings Account. If utilized correctly, an HSA can help beneficiaries cover their healthcare needs if they find themselves in a major pinch.
Beyond that initial explanation, what is a Health Savings Account? Further, who contributes to it and how does it help you save money? We’ve got all of those answers for you and more, right here at MedicareInsurance.com.
Are you still employed? If so, you’re probably still enrolled in a health insurance plan offered by your employer. If you’re unemployed and enrolled in a health insurance plan, you’re likely enrolled in a plan through the Affordable Care Act (ACA) Marketplace.
If you’re a beneficiary of any of the plan types mentioned above, your plan is more than likely a High-Deductible Health Insurance plan (HDHP). This means that you handle all expenses until you reach your health insurance plan’s deductible.
Because your plan features a high deductible, these plans may give you access to a Health Savings Account, or a Healthcare Savings Account. An HSA is set up to help you cover medical or healthcare expenses that aren’t covered by your insurance, such as:
There are certain things that your Health Savings Account will not cover, though. For instance, you cannot pay your health insurance premium with funds from your Healthcare Savings Account. If you make purchases for items that are not deemed medically necessary through your HSA, you’ll owe income taxes plus a 20 percent penalty for nonqualified expenses if you do so before the age of 65. If you use your HSA for such expenses when you turn 65 or after, you’ll only owe the income taxes.
When contributions are made to an HSA, that money stays in there until you decide that you need to use it. This is different from other types of savings accounts, such as Flexible Spending Accounts, where the money goes away if it isn’t used by a certain time.
Not everyone with a health insurance plan is eligible to enroll in a Healthcare Savings Account. The IRS has set forth certain eligibility standards for enrollment into an HSA. In order to enroll in a Health Savings Account, one must:
Your HSA will be funded primarily, but not always completely, by you. If you’re enrolled in an HSA through your employer’s healthcare plan, your contributions will be made via pre-tax payroll deductions, that you determine during open enrollment, by your employer. This means that you won’t have to pay federal income taxes on the money that’s put into your Healthcare Savings Account. In some instances, you won’t even have to pay state income taxes on them.
If you open your HSA through a non-employer HDHP, you are solely responsible for how much you contribute to your account, as the money isn’t coming out of your paycheck. The same goes for opening an HSA through a bank or other financial institution.
In most cases, you are the only contributor to your HSA. However, some employers may kick in to match your contribution at around 50 percent. This can be a nice boost to your HSA.
There are certain limits on how much you can contribute to your Health Savings Account in a year. In 2022, if you have a qualifying HDHP*, you can contribute the following amounts to your HSA:
If you allow the money in your HSA to roll over, you can contribute up to the same amount each year and let it grow. In some cases, your HSA may earn interest, which can increase the amount in your account even more.
*To be considered HSA-eligible, your HDHP must meet the following deductibles: $1,400 for individuals, and $2,800 for family coverage.
Unfortunately, if you’re a Medicare beneficiary, you can neither newly open an HSA or contribute money to an existing HSA. If you already have a Health Savings Account, you can use those funds for medical expenses, but once they’re gone, they’re gone.
As of late, there’s been a major push in Congress to allow those who are enrolled in Medicare to open and contribute to new and existing Health Savings Accounts. The Health Savings for Seniors Act was introduced as a bipartisan effort by Representatives Ami Bera, M.D. (D-CA) and Jason Smith (R-MO) to give seniors access to HSAs.
Hopefully, we’ve been able to provide an adequate answer to the question, “What is a Health Savings Account?” If you already have an HSA, you know that it can be a very helpful resource when it comes to covering medical costs. If you don’t have an HSA, and you’re eligible for Medicare, you still have great options for assistance.
In many cases, a Medicare Advantage plan will cover what Original Medicare (Medicare Part A and Medicare Part B) covers, plus more. To find a Medicare Advantage plan in your area that meets your needs, give our friendly, experienced, licensed agents a call today. They’ll be happy to help!