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.

HSAs are often paired with High Deductible Health Plans. HDHPs are a type of health insurance where the policyholder pays for everything until a deductible is met. After that, the insurance policy covers everything else. Wellness screenings such as annual physicals, shots, prenatal and well 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 you pay your deductible amount with a traditional health plan, the policyholder will typically pays 20 percent of medical expense 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 you have before you meet your deductible. If you don’t use all the HSA funds before you meet the deductible, the money can be left in the HSA and used toward medical expenses in another year. Employers offer HDHPs because it costs less per employee compared to traditional, lower deductible plans.

Most banks and even some insurance companies offer HSAs to their customers. Before opening your account, make sure you ask if there is a minimum amount needed to open the account and what fees you may be charged. Friendship's HSA accounts have not account fees or recurring charges.

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.
Keep in mind that there is a annual contribution limit. The maximum contribution limit for individual HDHP coverage in 2023 is $3,8500.00. If you have family coverage, the limit is $7,7500.00. You can view current contribution limits at https://www.irs.gov/

Taking money from an HSA is almost as easy as contributing it. 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. Just remember that whether you pay your bill directly from your HSA, or reimburse yourself from it, you need to keep all of your receipts. 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.

Speaking of taxes, you may get a tax deduction for money you contribute to your HSA. Any money that you use for a qualified medical expense 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 and 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 a HSA is right for you.
Do you still have questions about how Health Savings Accounts work? Stop by your nearest Friendship State Bank location or give us a call at 812-667-5101. We would love to help!
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