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What is a Health Savings Account?

A Health Savings Account, HSA, is a tool that employees and employers have to improve their health care options. It is a tax-advantaged way to accumulate savings for medical expenses.

High Deductible Health Plans
HSAs are paired with High Deductible Health Plans. HDHPs are health insurance plans that require the policyholder to pay for all medical expenses until the deductible is met. The insurance policy covers everything else.

Wellness screenings such as annual physicals, shots, prenatal, and wellness, child care, tobacco cessation and obesity weight loss programs are typically paid in full by the HDHP even if you have not met your deductible.

Once the deductible amount is met with a traditional health plan, the policyholder usually pays 20 percent of medical expenses and the insurance company pays 80 percent. HSAs can only be opened if you have an HDHP because you use the money in the HSA to pay for medical expenses before you meet your deductible. If you don’t use all the HSA funds before you meet the deductible, the money can be used toward medical expenses in another year.

Employers offer HDHPs because it costs less per employee compared to traditional, lower deductible plans.

Opening an HSA
Most banks and even some insurance companies offer HSAs to customers. Before opening your account, ask if there is a minimum amount needed to open the account and what fees you may be charged.

Contributing to an HSA
Anyone can contribute money to anyone else’s HSA. You can contribute to your own account. Some employers contribute to their employees’ accounts as part of their benefit plan. You can even opt to have a portion of your paycheck automatically deposited to your HSA.

Contribution Limits
There is an annual contribution limit. The maximum contribution limit for individual HDHP coverage in 2019 is $3,500.00. The limit is $7,000.00 for family coverage. These amounts increase to $3,550.00 and $7,100.00 in 2020.

Taking money from an HSA 
Most banks will issue debit cards specifically tied to your HSA so you can swipe at your doctor’s office. If you prefer online or mobile banking, making a payment is just a click or swipe away. You can also ask your bank about ordering checks for the account.

If you forget to use your HSA funds to pay for a medical expense, you can reimburse yourself for the payment. You are required to report how much money you contribute and how much money you withdraw from your HSA every year when you complete your taxes. It's a good practice to keep all of your receipts.

HSAs and Taxes
You may receive a tax deduction for the money you contribute to your HSA. Any money used for a qualified medical expenses comes out of your HSA tax-free. If you use your HSA money for any other reason, you must include this money as part of your income. You will pay a ten percent penalty on the amount when you file your taxes.
It is a good idea to speak with your accountant or tax preparer to determine if opening an HSA is right for you.