Health savings accounts (HSAs) can be an effective tool for planning and paying for future healthcare costs – provided they’re used properly.
HSA funds can be spent tax-free if used to cover eligible medical expenses such as deductibles, copayments and coinsurance premiums. You can even use them for over-the-counter medicines and services like acupuncture or chiropractic care.
Insurance Premiums
Health savings accounts (HSAs) can be invaluable tools if you enroll in a high-deductible healthcare plan (HDHP). An HSA allows you to save pretax money for medical expenses that don’t fall within the purview of insurance or reimbursement programs, including deductibles or out-of-pocket costs that fall outside insurance reimbursement or coverage, or future medical costs when investing for retirement.
HSAs allow account owners to easily and tax-free access funds at any time for eligible expenses. You may even use your HSA to purchase long-term care insurance premiums without incurring taxation – potentially helping manage those costs over the long haul.
Your Health Savings Account can also be used for other expenses, including copayments for services you use and copayments that are set amounts you owe at each visit. Unfortunately, monthly health insurance premiums do not count as qualified medical expenses according to IRS standards and therefore cannot be covered under your HSA.
HSA funds may also be used to pay for telemedicine visits when billed as medical appointments instead of telephone or video conferences, as well as purchase over-the-counter medicines like allergy or digestive health remedies from your HSA account. Many individuals do not realize that feminine hygiene products such as pads and tampons qualify for HSA reimbursement as well.
One of the key advantages of an HSA is having access to your funds at any time – unlike FSAs which often require you to spend down all accumulated funds before being eligible to contribute again. Your HSA account may also be used for COBRA premiums or Medicare Part B/C premiums as well as dental and vision coverage payments.
Long-Term Care Insurance
Long term care insurance can be an expensive but essential plan for those preparing to spend longer in retirement than the average person. This form of protection helps pay for in-home or nursing home stays when necessary, and using money from your HSA as premium payments (if your policy qualifies). For tax-free withdrawals from such policies (traditional standalone policies typically meet these qualifications).
When using an HSA to pay long-term care insurance premiums, the amount you can withdraw depends on your age at year end and is adjusted annually for inflation. In 2019, for instance, those 40 or younger can withdraw up to $420; those 41-50 can take $790; 51-60 can take $1580 while 61 to 70s can withdraw $42220 each year from their HSAs.
HSAs can also be used for non-premium expenses not covered by your health insurance plan, such as co-pays and coinsurance payments, over-the-counter medications, feminine hygiene products and other qualified expenses not covered by health plans. Furthermore, funds in your HSA may also be used to pay Medicare Advantage and Part D prescription drug coverage premiums (but not Medicare supplement policies) but not their supplemental policies premiums (unlike flexible spending accounts which rebalance every year). Unlike flexible spending accounts however, after age 65 distributions may be taxed as income, unless used towards qualifying expenses (ex: medical).
To avoid incurring penalties, it’s best to wait until you need the funds for your deductible before using your HSA to purchase long term care insurance. This allows for maximum flexibility when selecting which plan and coverage level will best meet your needs.
Disability Insurance
An HSA provides federal employees enrolled in HDHPs a tax-advantaged means to save for medical expenses. With payroll deductions, allotments to an HSA may be made pre-tax for future out-of-pocket costs such as their deductible. Furthermore, money held within an HSA may also be invested tax free until needed.
To open an HSA, first enroll in a high-deductible health plan (HDHP). Your healthcare insurance provider should send an information packet with all the forms necessary to open one; once completed and returned, their “premium pass through” payments will begin being deposited into it. Alternatively, opening one through your bank or another independent provider may also work.
HSAs can be used to reimburse qualified expenses such as long-term care policy premiums. It’s important to distinguish between an HSA and health care flexible spending account (FSA), since both can exist simultaneously – however if either account is used to fund unqualified expenses then taxes will apply on that amount.
Contrary to an FSA, your HSA balance carries over year after year and can be used later for medical expenses even after you retire or switch jobs. Since it belongs to you alone and can be transferred between employer health plans as needed or even carried over into retirement accounts – something FSAs cannot do.
To qualify for reimbursements from an HSA, expenses must fall under IRS regulations as “qualified medical expenses.” This definition covers prescriptions, eyeglasses, hearing aids, dental care and even LASIK surgery as examples of qualified expenses. Insurance premiums however do not fall into this category since your health plan typically reimburses providers after applying discounts from their negotiated fee schedule; you should always request an Explanation of Benefits (EoB) from your health care provider so you know exactly what liability remains after discount have been applied from their services provided to ensure your HSA tax benefits qualify!
Dental Insurance
Health Savings Accounts (HSAs) provide an effective means of covering medical expenses that fall outside the coverage of traditional insurance, including deductibles, copayments, prescription costs and dental costs. HSA funds may even be invested over time to generate interest – making an HSA an attractive way to supplement or replace traditional dental coverage altogether. It is essential to research what expenses qualify as eligible coverage before using funds from your HSA account to pay them off.
Some common questions regarding HSAs and dental coverage involve whether an HSA can be used to pay for orthodontics such as braces, whether teeth whitening is covered and what procedures would qualify as cosmetic and therefore not eligible for reimbursement with an HSA. The short answer to these inquiries is yes – an HSA can indeed be used to cover orthodontics as well as other dental treatments.
Healthcare providers typically consider dental procedures and products deemed essential to treating an illness or condition essential, like fluoride treatments and mouthwashes, to be covered by HSA funds. Furthermore, if oral surgery such as wisdom tooth extraction becomes medically necessary for the patient then any associated costs can also be reimbursed using an HSA account.
When paying for dental care with an HSA, it’s essential that you understand which expenses qualify as eligible expenses so as to not inadvertently spend on something prohibited by IRS rules. Otherwise, an IRS penalty of 20% would apply; as this type of account acts more like savings than credit accounts are treated similarly.
An HSA offers another advantage over flexible spending accounts (FSAs), in that funds in it never expire. Conversely, FSA funds must be spent before December or be forfeited. Furthermore, HSA funds are portable; you can take them with you should you change health plans, retire or exit from the workforce.
