For those with high-deductible healthcare plans, low monthly premiums can also mean high out-of-pocket expenses. These plans are often thought to be the right choice for those who are unlikely to experience significant health problems, or employers who cannot afford to provide a more expensive, low-deductible plan. But when health problems do strike, they can wipe out an individual’s financial resources. A health savings account (HSA) is the answer to that problem.
What is an HSA? A health savings account works like a savings account, but the money in it will be strictly used for covering out-of-pocket healthcare expenses. They can be paired with low-premium, high-deductible healthcare plans, to help employees save up to meet their deductibles and other costs.
An HSA provides certain tax advantages. An HSA is funded via automatic contributions from the employee’s paycheck, on a pre-tax basis. This means that the funds used to cover their out-of-pocket healthcare expenses are not taxed, and the employee’s overall income tax liability is lowered by the amount of their HSA contributions for the year. This can provide a significan tax benefit to workers while helping them to budget for large medical expenses.
HSA funds roll over from one year to the next. If funds within the HSA are not used in a particular year, there is no risk of losing the money. It simply rolls over to the next year. In fact, because the HSA stays with the employee and rolls over each year, they can even take it with them into retirement. At that point the money can be used to cover Medicare premiums or out-of-pocket healthcare expenses like prescription medications, making HSAs another way to prepare for the future.
What is the HSA contribution limit? In 2022, individuals can save $3,650 and those with family healthcare plans can save $7,300 in their HSA.
What if my employer does not offer an HSA? You can still open a health savings account through any bank that offers one. Then, you can fully deduct your contributions on your tax return each year.
To learn more about HSAs and how they can help you and/or your employees, give us a call and we’ll help you evaluate the possibilities.