HSA Insurance Plans and Health Savings Account
HSA Insurance plan is a qualified High Deductible Health Plan (HDHP) featured with a tax-advantaged health savings account (HSA) administrated by a qualified bank or financial institution. Not all health insurance plans qualify for tax benefits included in HSA plans. To qualify, a medical plan must meet deductible, out-of-pocket limit, and HSA contribution limit requirements set each year by IRS.
The core of HSA insurance is that HDHP plans are to cover major medical expenses and health savings accounts are to fund minor eligible medical expenses such as office visits or preventive care services.
Eligible Medical Expenses
Internal Revenue Services defines a list of medical services that can be funded with contributions made to hsa accounts on tax-free basis. Some of them are hospital services, dental treatment, chiropractor, contact lenses, hearing aids, organ donors, psychiatric care, stop-smoking programs, wheelchair and more.
To be paid for, a medical service doesn’t have to be covered by your HDHP plan. In fact, some of them such as contact lenses or eyeglasses are rarely included in individual or family health insurance policies. After buying an HDHP and opening HSA you can pay for health care using a debit card or checks provided by your hsa administrator.
How do Health Saving Accounts and HSA Insurance Plans work together?
HSA insurance works almost the same way catastrophic health insurance does. You pay for medical expenses up to your out-of-pocket maximum including the deductible. After they are paid, your insurer starts to cover health care services.
The main difference is that HSA plans are enriched with the tax benefits if you do contributions to a health savings account and then use them to pay for eligible medical expenses. Any health insurance plan that meets IRS HSA requirements can qualify for tax advantages.
For 2017, HSA requirements are as follows:
- $1,300 minimum deductible
- $6,550 maximum out-of-pocket limit (including deductible)
- $3,400 maximum contribution limit*
- $2,600 minimum deductible
- $13,100 maximum out-of-pocket limit (including deductible)
- $6,750 maximum contribution limit*
*If you are over 55 years old, you can make additional "catch-up" contributions just like in IRAs. For 2017 the catch-up contribution limit is $1,000.
Each year the above hsa insurance requirements are adjusted by IRS to current economic situation and inflation.
How does a health savings account work?
- You deposit money into the hsa in the amount allowed by IRS in a given fiscal year. The maximum amount of money that can be deposited is the hsa contribution limit. Contributions to health savings account can be made in a lump sum or any amount. Also, there is no obligation as to the frequency of deposits. You, as the account holder, are in the control of the account and the money on it. HSA Contributions can be invested in stocks, mutual funds or other investment vehicles of your choice.
- You use contributions to pay for the eligible medical expenses on tax-free basis. Any unused contributions roll over to the next year.
HSA Tax Advantages
- Tax-Deductible Contributions - Deposits made to HSA accounts are tax-deductible. They are deducted from your Gross Annual Income on IRS Form 1040. That means that your taxable income is lowered by the amount of money deposited into the HSA.
- Tax-Free Withdrawals - If the money collected on the account is used to pay for hsa medical expenses, it is not a subject to income tax. However, if the hsa contributions are use for non-eligible medical expenses such as mortgage or rent payments, it is taxed. If you’re are under the age of 65 you would also have to pay additional 10% penalty.
- Tax-Deferred Interest Income - The interest earned on unused contributions over the years is not taxed unless withdrawals are made. As soon as you withdraw the money, it is a subject to income tax in a fiscal year the withdrawal was made.
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