How an HSA Saves You Money
What's an HSA?
If you don’t know what an HSA, or “health savings account” is, don't stress. An HSA is really just a bank account you create to set pre-tax money aside for your health expenses. This account can be a simple checking account OR an investment vehicle (like the mutual funds you might use for your 401(k) money). Most banks can help your create one quickly.
HSA's are typically paired with high-deductible health plans, which have lower monthly payments. Because these payments are lower than those of a traditional, more expensive plan, you pay more for medical services; ideally, you're saving money in an HSA to cover those medical costs.
Here's a fancy chart, courtesy of Health Equity, to explain what we mean:
Contributions to an HSA are tax-deductible if you are enrolled in a high-deductible health plan (so, if your individual deductible is more than $1300, or your family deductible is more than $2600, you probably qualify). Interest you earn on the HSA account is also tax free. You can keep your HSA funds even if you change health plans next year, and your employer can contribute for you.
Bottom line: if you pay the medical expenses out of your HSA, you’re not taxed on the income you put there.
What To Do With Your HSA
Once the money is in your HSA, you can spend it on any qualified medical expenses like doctor copays, prescription drug costs, knee braces, and many other similar expenses (read about all of them here). If you contribute $2000, you’d keep at least $300 more to spend on your medical expenses that you’d otherwise pay to the IRS.
For help figuring out whether your health plan allows you to create an HSA, email email@example.com with the name of your plan and whether it’s an individual or family plan. We'll help you out!