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What is an HSA-qualified Health Plan and How Can It Benefit Me?

A Health Savings Account, or HSA, is a personal savings account that allows you to pay for medical expenses with tax-free dollars. HSAs are designed to complement a special type of health insurance called an HSA-qualified high-deductible health plan (HDHP).

High-deductible health plans typically offer lower monthly premiums than traditional health plans. With an HSA-qualified HDHP, you can take the money you save on premiums and invest it in the HSA. While you are responsible for your initial health care costs until the deductible is met, the advantage is that the money saved on premiums is ready and waiting to pay for qualified medical expenses. In addition, HDHPs generally provide coverage for preventive care services, such as routine doctor’s visits and annual physicals.

Beyond the lower premiums afforded by an HSA-qualified HDHP, an HSA account offers several benefits:

• Ownership and portability. You own the account. Money you contribute accumulates from year to year—no “use-it-or-lose-it” rules. And your account travels with you whether you change jobs, become unemployed, or switch insurance carriers.

• Flexibility. You can use the money in your account to pay for qualified medical expenses, such as office visits, eyewear, prescription medication, deductibles, copays, and coinsurance—as well as expenses your plan doesn’t cover, such as laser vision correction. If you leave a job and find yourself without health benefits, the IRS allows you to pay for COBRA coverage using funds from your HSA. You can even use your HSA to pay for medical expenses for your spouse or dependent children who aren’t covered by your plan.

• Tax-free savings. You can save funds in your HSA for future medical expenses and earn interest on the total, tax-free. Tax benefits may also include: deductions for yearly contributions, tax-free investment earnings, and tax-free withdrawals for qualified medical expenses. (Talk with your tax advisor to verify which benefits apply to you.)

Of course, HSA plans have potential drawbacks, too. While you can invest your HSA money in stocks, bonds, and mutual funds, there’s no guarantee that these investments will increase in value. Like any investment, risk is involved. Furthermore, withdrawing funds for non-medical expenses results in a penalty, plus you’ll have to pay tax on the amount withdrawn.

HSA-qualified HDHPs can be a good choice for:

• People interested in trading higher out-of-pocket costs for lower premiums.
• People who want more control over their health care spending.

• Those interested in the tax benefits of an HSA.
• Anyone interested in using a personal savings account to pay for qualified medical expenses.

Is an HSA right for you? WPS can help you decide. If you have any questions, feel free to call one of our friendly representatives at 1-888-245-4197.

Sources: IRS.gov, U.S. Treasury Department