Health Savings Accounts (HSA): What To Know & How To Save (2023)
The health savings account benefits are that you can save money and have it ready for medical expenses as well as a possible health savings account deduction. You must be under the age of 65 and carry a high-deductible or catastrophe insurance plan to open a health savings account.
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Leslie Kasperowicz
Farmers CSR for 4 Years
Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insuranc...
Farmers CSR for 4 Years
UPDATED: Sep 26, 2022
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UPDATED: Sep 26, 2022
It’s all about you. We want to help you make the right coverage choices.
Advertiser Disclosure: We strive to help you make confident insurance decisions. Comparison shopping should be easy. We are not affiliated with any one insurance provider and cannot guarantee quotes from any single provider.
Our insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different insurance companies please enter your ZIP code on this page to use the free quote tool. The more quotes you compare, the more chances to save.
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No matter what type of health insurance you carry, you will most likely be responsible for many out-of-pocket expenses. Insurance companies keep their operating costs low by shifting some of the financial burden to patients. This is especially true of the more affordable policies, which usually feature high deductibles and high out-of-pocket limits. Fortunately, if you have such a policy, there are ways to reduce the financial burden of your health care expenses.
A health savings account, or HSA, is an excellent way to save money for medical expenses. The HSA allows you to put money aside before taxes, which increases the amount you can save. With employer-based insurance, the HSA withdrawal might be taken straight from your paycheck. You can still set up an HSA even if you buy your insurance independently, however.
How Does a Health Savings Account Work?
An HSA works similar to a traditional IRA, which allows you to put pre-tax money into an account for later use. The pre-tax part is important because it effectively reduces your overall taxable income for the year. Where the HSA is different from a traditional IRA is at the time of withdrawal. Traditional IRAs are taxed when money is pulled out, but an HSA is not as long as the money is used for a qualified medical expense.
HSAs are hailed by many financial advisers as one of the best tools a person can use to lower their annual tax liability because you never pay taxes on the money if used for qualified expenses. You can also save the money and roll it over for years. The money in the HSA can be invested to help it grow, and can be used later in life when medical expenses may be very large.
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What Expenses Will an HSA Cover?
A health savings account will pay for any qualifying medical expense that you may incur throughout the year. This includes deductibles, co-payments, coinsurance and prescription drug costs. In some cases, you may also be able to use your HSA to pay for certain over-the-counter drugs, vaccinations and other medications that insurance would not pay for. If you have an HSA, you should be able to apply those funds toward prescriptions even if you do not have prescription drug coverage through your insurance, which is a primary benefit of HSAs for many patients.
Having money set aside in your HSA helps to mitigate the expense of a high-limit policy. Since you can use the pre-tax dollars in the HSA to pay for medical expenses, you reduce the amount you must spend on medical care and keep more money in your pocket.
Can Anyone Qualify for a Health Savings Account?
Not everyone can set up a health savings account. In order to establish an HSA, you must be under the age of 65 and carry a high-deductible or catastrophe insurance plan. This plan must be your only health insurance, and your spouse must also be enrolled in a high-deductible plan if he or she uses your insurance as secondary coverage. For HSA purposes, a high-deductible plan is one with a deductible higher than $1,250 for an individual or $2,500 for a family plan.
Once you’ve determined that you qualify for an HSA, establishing the account is fairly simple. If you receive insurance through a group plan, your employer can set it up in your name. Otherwise, you can speak with your insurance company or a local bank for guidance. By setting up a health savings account right away, you can take advantage of the low premiums offered by a high-deductible policy without spending as much on medical expenses.
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Leslie Kasperowicz
Farmers CSR for 4 Years
Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insuranc...
Farmers CSR for 4 Years
Editorial Guidelines: We are a free online resource for anyone interested in learning more about insurance. Our goal is to be an objective, third-party resource for everything insurance related. We update our site regularly, and all content is reviewed by insurance experts.