When you’re signing up for health insurance, you may see some unfamiliar acronyms and wonder, “What is an HSA?”
HSA stands for Health Savings Account, and it is a handy way to save for medical expenses and reduce your taxable income. Read on to learn more about how HSAs work and how they can benefit you.
Qualifying for an HSA
If you are enrolled in a high-deductible health insurance plan (HDHP) as defined by the government, you can qualify for an HSA.
How an HSA works
Each year, you decide how much to contribute to your HSA account, though you cannot exceed government-mandated maximums.
You will receive a debit card or checks linked to your HSA balance, and you can use the funds on eligible medical expenses. This includes deductibles, copays and coinsurance, plus other qualified medical expenses not covered by your plan. Be aware that insurance premiums cannot be paid for with HSA funds.
Unlike a Flexible Spending Account, your HSA balance rolls over from year to year, so you never have to worry about losing your savings. Once you’re over age 65 and enrolled in Medicare, you can no longer contribute to an HSA, but you can still use the money for out-of-pocket medical expenses. If you use the money on non-eligible expenses, you have to pay income tax on that amount (plus a penalty if you’re under 65).
