A health savings account (HSA) can be a great resource for people who are covered by a high deductible health plan.
It allows them to save money from every paycheck towards paying for medical expenses and can help patients avoid cleaning out their savings to pay for medical bills.
As high deductible plans increase in popularity, employer sponsored policies have turned to this resource as a measure to help patients limit the overall cost of out-of-pocket expenses for health care.
Everyone loves fewer taxes
Under normal circumstances, your medical expenses must exceed 7.5% of your gross income to receive a tax break according to the IRS. However, a health savings account allows you to put aside money, pre-tax, on a weekly basis toward the costs of qualified medical expenses.
Right now the IRS allows an individual to contribute up to $6,450 annually to their HSA for family coverage and deduct the full contribution from their reported income.
If the policy just covers yourself, an individual can contribute up to $3,250 in 2013.
This effectively lets you deduct all of your medical expenses as long as they don't exceed the contribution threshold.
Your money won't disappear at year end
One of the most important benefits to an HSA is that the money you put in there is not liquidated at the end of the year like a flexible spending account.
Some insurance companies offer the flexible spending account as an alternative buffer against healthcare costs and although it has the same tax advantages as an HSA, the money you don't use disappears at the end of the year.
This is frustrating because you may end up losing more money that the aforementioned tax break will save you. Thankfully an HSA does not suffer from this problem and you can accumulate money over several years that will remain in case of a medical emergency.
Your HSA will follow you
If you have an employer sponsored health savings account, you need not feel bound to work for that company in order to take advantage of the account's benefits. If you leave for some reason, your HSA will go with you along with the benefits.
If your new health plan also qualifies as a high deductible health plan, you will be able to continue contributing to it. Even if it doesn't, you will still be able to use the funds to pay for medical expenses, tax free.
If you have a high deductible health plan it makes a lot of sense to contribute to an HSA. With a high deductible it's a virtual certainty that you're going to be responsible for some out of pocket costs throughout the year and an HSA can protect your assets.
Some employers even contribute funds on a monthly basis for you, so just having the account will yield free money to save for when you need it.
If you qualify for this type of account it's an absolute necessity to take advantage of it.