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What’s an HSA? An Introduction and Four Tips

The Affordable Care Act (ACA) has created—and will continue to create—sweeping changes in how consumers (both individuals and businesses) approach health coverage and care.

Health-related costs are increasing, which makes high-deductible health plans (HDHPs) especially attractive for both employers and individuals. HDHPs, as their name implies, offer coverage at a lower monthly cost, in exchange for a higher deductible. A deductible is the amount of money an insured person must pay in order for insurance coverage to kick in. In 2014, in order to qualify as an HDHP, the IRS considers the minimum individual deductible for individual coverage to be $1,250. The minimum family deductible to qualify as an HDHP is $2,500.

Health Savings Accounts (HSAs) are a relatively new financial tool. They were created in 2003 specifically to be used in conjunction with HDHPs. Think of an HSA as a combination 401(k) and checking account that is to be used for medical expenses. Contributions to HSAs are deducted from your paycheck pre-tax, which means your dollar goes farther. Yet HSAs are under-utilized and misunderstood—perhaps because they are somewhat new. Here are a few pointers to help think through HSA-related issues:

  • Choose your health plan wisely. Remember that, in order to use an HSA, you must have an HDHP! If you see certain providers regularly, make sure they’re in your new plan’s network.
  • Open, and contribute to, your HSA. Once you enroll in an HDHP, you must also enroll in an HSA account. Usually, insurers will offer a companion account. If not, most banks have HSA accounts available. Others—including employers—can also contribute to your HSA. The money invested in an HSA is yours to keep and use for health-related expenses—it doesn’t roll back to your employer or other contributors.
  • Use your HSA funds! You can use your HSA to pay for co-pays, deductibles, coinsurance, and other out-of-pocket expenses. However, HSAs generally cannot be used to cover the cost of insurance premiums or over-the-counter medication.
  • Continue using your account in retirement. Remember: The money invested in an HSA is yours, but it must be used for health-related expenses. Like an IRA, you can decide on your preferred investment allocation (e.g., stocks, bonds, etc.). Once you reach age 65, you can no longer contribute to your HSA. Instead, you can use the account for Medicare-related expenses—it’s a great retirement savings vehicle!

What other tips do you have for communicating about, and/or using, an HSA? Please share!

In the meantime, here are a few additional HSA-related resources:

From LifeHealthPro

From Blue Cross Blue Shield of Michigan

From the US Department of Treasury

Have questions?  Post them at www.mihealthanswers.com, or email them to advisor@mihealthanswers.com.

This post was contributed by Shannon Saksewski (Health Education Program Manager, Detroit Regional Chamber).  Shannon can be contacted at ssaksewski@detroitchamber.com.