It’s very common that people do not understand the benefits of Health Savings Accounts. We hear questions like these all the time:
- What is a Health Savings Account?
- Do I lose it if I don’t use it by the end of the year?
- How does it cover my costs?
- How does it actually benefit me?
- What does that do for me in terms of my healthcare costs?
- How does it compare to a conventional plan?
- And many more.
Let’s take a look at how Health Savings Accounts (HSA) work.
Utilizing Your HSA
Under a usual health insurance plan, a person has a deductible and coinsurance. There might be a copay for primary care or a specialist. There are also pharmacy copays.
With many insurance plans, until you reach the amount of your deductible, copays don’t apply. The copay kicks in after you meet the deductible, however, some plans don’t have copays at all because of situations where you meet the deductible at the same time that you meet the out-of-pocket maximum.
Either way, the funds in your HSA can be used to pay any copays you need to cover.
At MBhealth, we help people understand how to use their HSA funds to their best advantage.
Tax Benefits of an HSA
The other benefit you get from an HSA is a tax benefit. Any time that you visit a doctor or fill a prescription or do anything else that would be considered a qualified medical expense—even if it would not be covered under your health insurance—you can use the funds in your HSA for that cost. For example, you could use this account for dental visits.
The exact IRS document that covers this point is IRS Publication 502, if you want to look it up. That publication talks about the types of care you can use this money for and the tax benefits you can get.
Example: Suppose you go to the doctor and the visit costs $200. You pay for that cost from your HSA. Your cash payment takes the cost down to $100.
Your contribution to your HSA went into that savings account before you had any taxes taken out of your pay at work. So in essence, you’re paying for this medical visit with tax-free money.
Contributing to Your HSA
How much can you contribute each year to your HSA in 2023?
- An individual can add up to $3,850 to their HSA.
- For a family, it’s $7,750.
- For a person aged 55 or older, they can add an extra thousand to those numbers.
Therefore, a family of four with an HSA can deduct $7,750 a year from the income they pay taxes on.
The Illinois and Missouri insurance brokers at MBhealth are ready to answer all your questions about an HSA, like how it works and when you should use it. Please call us with any questions: (314) 544-5400. Or you can contact us here.