There are a variety of options beyond a simple insurance plan to make paying for medical expenses more common. One of the best known of these opportunities is the health savings account — a tax-advantaged savings account that can help you make sure that you have money when a medical emergency comes along. There are also flexible savings accounts and other plans that, depending on your insurance situation, let you set up something similar to a health savings account. Each of these opportunities comes with its own set of rules, making it very important to read up on just what you need to do to get the most benefit from them.
1. How Much Money Can You Really Contribute?
Because a health savings account is tax advantaged, there are limits on just much you can contribute to it. The limits go up if you have a spouse or your dependents on the same plan, but even if you have quite a large family, you’re looking at an upper limit of just $6,150. If you’re 55 or older, you can add an additional $1,000 per year, but that’s about it.
If you absolutely know your family will be facing more than $6,000 in medical expenses next year, it’s worth looking for alternatives to a health savings account.
2. What’s a Qualifying Expense?
Money you pull out of your health savings account or another specialized savings plan has to go towards qualifying medical expenses. But just what counts differs from account to account — and can even change from year to year. You may be able to use your money on practically anything in a pharmacy, down to bandaids, or you may only be able to use it on prescriptions, doctors’ visits and other ‘official’ medical expenses.
3. Is This Plan Really Cheaper?
Health savings accounts are only available with high deductible insurance plans and, while other savings accounts are available with different types of insurance packages, you need to figure out how much you really expect to pay over the course of the year. Sure, you may be looking at lower premiums — but your contributions towards your account have to be factored in, along with a list of situations that your insurance may not cover because you’re expected to use your health savings account.
4. Are You Invested in Your Own Health?
If you’re healthy and committed to staying that way, using a savings account can be a useful addition to your insurance mix. You can bring down your premiums and cover costs out of your savings account, provided that you’re already in a position where you’ve minimized the amount of medical care you’ll need.
5. Can You Use the Account to Supplement Your Other Savings?
Depending on your personal situation, you may be able to find ways to make your entire financial situation a little more secure. For instance, retirees with medical expenses can use a health savings account to effectively supplement their retirement savings because they are expected to have medical bills anyhow.
If you’re facing a pre-existing condition and hitting your deductible fairly early in the year, a health savings account option can look a lot better than the other accounts out there. With the high deductible plans that go hand in hand with health savings accounts, you can almost certainly put yourself in a position where you only pay the amount that you’ve saved towards your health insurance.
6. How Much Money Do Your Really Need for Medical Expenses?
At the end of the year, you simply don’t want to have money sitting in some account where you’re going to have to jump through hoops to get it back. Not all programs roll over money, either: if you don’t use it, you could lose it. You have to be very clear on how much you know you’ll spend towards medical expenses and how much you think you’ll use.
7. How Easily Can You Get Your Money Back Out?
Emergencies do happen, and they aren’t always related to your health. If you find yourself in a position where you need to use money previously earmarked for medical expenses, you could be in for a world of hurt.
Health savings accounts and flexible spending accounts can make it difficult to pull money out for anything but qualified medical expenses. It’s not impossible, but it can be painful: pulling money out of a health savings account can be subject to a ten percent penalty and be considered taxable income.
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My husband is over 55 and is on a family HDHP and a family HSA plan from January to March and I’m on that plan as his spouse. In April he will go on Medicare, and I will continue on Cobra HDHP, which I know the HSA in his name will only be 3/12 of the contribution. On the fourth month I will open an HSA account in my own name and I am over 55. Do I calculate 9/12th of a single HSA plus extra 1000 for what I can totally contribute for the hear to my individual now HSA plan?????
My husband is 68 – working, receives medicare, and has a state health insurance premium for both of us. He is also retired military, and has tricare.
I am self-employed, 61 and I am listed as dependent on both state and federal insurance. State insurance policy is $800.00 a month.
We are both healthy – yearly check ups and routine dental and vision care.
Would it be advisible to enroll in HSA – ??
The State Insurance Policy $800.00 a month seems way too expensive for healthy people. I think you could get a high deductible HSA for much less per month, but keep in mind that only routine physicals are covered without having to take money out of the HSA, except for a low cost Heart Rate test you doctor may do during a physical. For example, I purchased a Blue Cross Blue Shield high deductible policy for me and my wife and 20 year old college student son for $520.00 per month and $6,000 deductible. This includes a dental rider for routine cleanings and xrays twice a year without having to pay anything. Vision tests are not covered. Be aware though that BCBS and other companies are very stingy about covering other problems that could occur on an individual health policy. For example, an MRI ordered by a neurologist for out son who hit his head a year ago was not covered(meaning that reduced insurance cost be put under our high deductible, but not paid by BCBS) and BCBS denied this even though our neurologist appealed this 2 times to higher BCBS authority. The MRI facility was very nice and reduced the MRI cost a lot anyway that we paid out of the HSA. The non-covered Heart Rate test used to be covered until this year. Other health companies may cover that. Keep this in mind before you buy an individual policy.
I had a FSA in the past and I moved last year to the HSA with my HDHP. I am still figuring out how much I need but currently I am putting in $75 monthly into the account. When I started the plan in August last year I did not think I would need more than that because I am generally healthy and really have been going for my yearly checkups and not much else. Then I remembered I can use the HSA card to pay for the copays so that card is always with me and it is more convenient than sending in receipts to the FSA and waiting for reimbursements.