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What Are HSAs?

Click here to get a 12-page Individual HSA Primer

Click here to get a 17-page Employer HSA Primer

A Health Savings Account (HSA) helps you save money on health care. They also save money for most employers, while giving workers healthcare protection. By making you a part of the medical services decision process, HSAs are designed to help you manage medical expenses and reduce the continuing raising of health care expenses. Equally as important, the money you save remains part of your retirement account, even if you leave your present employer. In short, if you don’t use all the money in your HSA for medical expenses, it can accumulate as tax-free savings for your retirement. One final benefit, HSAs can pay for many more procedures than were ever allowed before by government sponsored programs.

Health Savings Accounts help you save money on unavoidable expenses and build investment savings for your retirement.

What’s In It for You?

An HSA is:

  • A way to save money on health care. Sooner or later you will have to spend money on health care. But an HSA might help you spend less.
  • A tax saver. Not only does an HSA let you cover your medical costs tax-free, but your contributions to the account may nudge you into a lower tax bracket — so you could save on your whole tax bill, not just your health care costs.
  • A way to pay for health care your traditional insurance might not cover. You can use an HSA to pay tax-free for acupuncture, visits to the chiropractor, fertility treatments, therapy, and eye care — just to name a few.
  • Portable. HSAs can travel with you from job to job. You always have a right to 100% of the money in your account.
  • A source of investment income. HSAs are designed so that you can always withdraw money when you need it. But the money you don’t withdraw has the potential to grow and accumulate interest.
  • An improved retirement account. HSAs function much like 401(k)s or IRAs, but with an important difference. When you put money in a typical retirement account, it’s there to stay — you could forfeit as much as a third of it in tax penalties if you withdraw it before reaching retirement age. With an HSA, when you use the money for medical expenses, your withdrawals are tax-free. HSAs don’t replace your current retirement accounts, but they can be a major supplement to your retirement savings.
  • Money in your pocket. To participate in an HSA, you must be enrolled in a high-deductible health plan (HDHP). HDHPs typically have the lowest premiums of all health plans. If you’re currently enrolled in an HMO or a PPO and you switch to an HDHP, you could save one-third to one-half of your cost for coverage, right off the bat. (Some HMOs are offering HSA eligible plans.)
How Do HSAs Work?

Dollars put into a health savings account can be withdrawn instantly for qualified medical expenses as needed; any dollars remaining can be saved for spending in future years, or invested to accumulate savings for health needs after retirement.

How Does an HSA Coordinate with Your Health Insurance?

HSAs don’t replace a normal or typical health insurance policy. They are designed as a supplement to a high-deductible health insurance policy.

Because the HSA is tied to a high-deductible health insurance policy, you will “pay as you go” for medical care, using your tax-free HSA dollars, until you spend up to the deductible. Once you meet the deductible, the health insurance pays for most of your medical expenses for the rest of the year. You may choose your own doctor and level of care. By themselves, HSAs are savings vehicles — not insurance policies — so they don’t restrict your access to coverage or your choice of providers.

The HSA program has two parts: a high-deductible health plan (which usually costs less than other health plans) and a tax-advantaged, portable savings account for payment of current medical expenses which builds like a Medical IRA.


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