As health care costs continue to soar (medical insurance premiums alone are expected to rise an average of 8.7 percent this year), Americans continue to look for ways to afford medical insurance and to pay the increasing costs of medical treatment. One of the newest weapons in the fight against growing expenses is the health savings account (HSA), though for many the HSA remains an unknown entity. Personal finance guru David Bach recognizes that most people are unfamiliar with the HSA and takes up the task for educating readers on the definition and uses of HSAs, starting with a short description of what HSAs are:
“You can think of an HSA as a 401(k) or an IRA dedicated to paying for your medical expenses. You contribute to the account with pre-tax dollars if you save through your employer’s plan, or your contributions are tax-deductible if you have an individual plan. Contributions are invested much like your retirement savings (investment options vary by provider), which allows for compounded growth of your savings over time. When you have qualified medical expenses, you can use the money you’ve built up in your HSA to pay for them without incurring any tax consequences.”
He then lists seven things we all need to know about health savings accounts:
7. HSAs aren’t the same as HRAs or FSAs.
6. Once you hit 65, the money is all yours — penalty free.
5. HSAs offer real flexibility, and portability.
4. Eligible expenses go beyond those that count against your deductible.
3. You contribute to HSAs just like retirement accounts.
2. You need a high-deductible health plan to qualify.
1. HSAs are essentially tax-free medical savings accounts.
It’s a good, basic overview of what will likely become a more commonplace fixture in many American’s plans to afford quality health care.
For more information on HSAs, check out the Treasury
Department’s brochure on the subject.
Seven Things to Know About Health Savings Accounts [Yahoo Finance]