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What are the advantages to using a health savings account (HSA)?

My company offers an optional HSA as part of our benefits package but I don't really understand why I would use it or if I did how much money I should put in it

Mar 01, 2012 by Maureen from Flagstaff, AZ in  |  Flag
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Think of HSA’s as high deductible PPO’s. The network is exactly the same as your traditional PPO. The advantage with an HSA is that you have the ability to establish a savings account for your medical expenses. You are able to get a federal and in some cases state tax deductions for the amount you deposit into the account (up to IRS limits). Any growth in the account is tax deferred. An HSA may lose value. As long as you use the money for qualified medical expenses (this can include dental, vision, chiro, acupuncture etc…) the money can be withdrawn tax free.

There is the potential for significant long term savings if you make the full contribution every year and do not have high medical expenses. There is the ability to invest the money is many of the options, stock, mutual funds etc… ( check with a bank that offers HSA accounts). Even if you do have high medical expenses your risk exposure may be less than a PPO. There is a 20% penalty for withdrawals prior to age 65 for non- qualified expenses. At age 65, you may withdrawal the money for any reason and will not pay a penalty, only taxes on the amount received.

HSA’s are becoming more popular every year. Consult with your HR director of broker to see if a plan like this would be prudent for you.

Greg Levin is Registered Representatives with and offer Securities through LPL Financial, Member FINRA/SIPC. LPL Financial Tracking #1-090886

Comment   |  Flag   |  Aug 15, 2012 from Cowan Heights, CA

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Maureen, HSA (Health Savings Account) are useful for individuals that have high deductible health plans. These HSA's allow you to deposit your own funds pre-tax allowing you to avoid taxation on your qualified medical expenses. If you have a high deductible plan, you may consider contributing some of your income to an HSA, as an individual you can contribute up to $3,100 per year or $6,250 for a family. However much like an IRA if you withdraw any funds from your HSA that is not considered a qualified medical expense you will be subject to taxes and a penalty of 10%. I would caution you with regards to how much you contribute. Take some time and look at your historical medical expenses to determine how much you should contribute.

Comment   |  Flag   |  Mar 01, 2012 from Gilbert, AZ

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Maureen,

I have had a health savings account (HSA) for years. What you have is a high deductible insurance policy in combination with an optional savings plan. Your employer may or may not contribute to the savings plan. You also may or may not contribute to the savings plan. The basic idea is for you to put aside money into the saving account to cover medical expenses and/or your deductible. Any money that you put into the HSA is tax deductible. Any earnings, whether interest, dividends, or capital gains are tax free. Distributions for qualified medical expenses are tax free. Contributions and earning remain in the account until you use them (in other words, it is not a use it or lose it by a certain date like a flexible spending account). The account is portable should you change employers, lose your job, or retire. If you are single, you can contribute up to $3050 into the HSA for 2011 assuming you had that plan for the entire year. Similiarly, for a family you could contribute of to $6150.

Here are a couple of links that may be of help to you:

Overview of HSAs http://www.mayoclinic.com/health/health-savings-accounts/GA00053

IRS Publication 969: http://www.irs.gov/pub/irs-pdf/p969.pdf

Comment   |  Flag   |  Mar 01, 2012 from Lowell, MI

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Don Unger, MSFS Level 18

Here is why I like Health Savings Accounts for my clients who can think out of the box. Lower cost for the health insurance premium due to using a high deductible along with a tax advantaged savigs account that you control. Because there are fewer actual "claims" for the insurance company to deal with, they have lower adminstrative costs and therefor the rate of future premium increases should be less than a "traditional" health insurance plan. If you fund the actual savings account portion properly (I usually try to have my clients put half of the deductible in during the year), and have a couple of years without major claims, you can have your total deductible or more saved up and then you can reduce the payments into the savings account and sit back and enjoy. Funds in the savings account can be used to pay for dental and vision care too, but probably won't be applied to your deductible. On the other hand you are using tax advantaged dollars to pay for these expenses.

Comment   |  Flag   |  Oct 02, 2012 from Henrico, VA

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The financial aspects have been well covered. One critical benefit of an HSA is what it does to your medical spending behavior. Unlike common medical insurance that has much higher fixed premiums and encourages "getting your money's worth" by utilizing medical services without regard to cost, an HSA solution has much lower fixed premiums but you must pay the first few thousand of medical services out of your own pocket. This has the wonderful effect of causing people to ask what medical services cost and what benefit is gained by incurring them, something sorely missing in the general medical insurance world.

Comment   |  Flag   |  Sep 05, 2012 from Western Springs, IL

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