Health insurance in the United States works in a rather complicated way. In addition to paying monthly premiums, which are not cheap for most people, we also have to pay a deductible before the insurer starts covering medical costs. In other words, if your plan’s deductible is $1,500, you will pay 100% of eligible health expenses until the bills total $1,500. After that, the insurer will cover most of the expenses, and you will only be responsible for the coinsurance.
Paying for medical expenses until reaching the maximum deductible is undoubtedly a burden on the budget of many families. One option to ease the blow is to open a Health Savings Account (HSA).
How HSAs Work
You set aside a portion of each paycheck to fund your HSA with tax advantages. The savings account is associated with a high-deductible health insurance plan. You can use the HSA funds for health services and treatments as needed or keep the money invested for your medical needs, as the funds can be carried over year after year.
Tax Advantages
Contributions to HSAs can be 100% deducted from your gross income, and all interest earned on the invested funds grows tax-free unless used for non-medical and non-eligible medical expenses.
It is worth noting that you need to have a high-deductible health insurance plan to qualify for the tax advantages of the HSA. Qualified plans require a deductible of at least $1,600 for individual coverage or $3,200 for a family plan for the year 2024, according to the IRS.
The annual deductible contribution limit for HSAs will receive a considerable increase due to inflation in 2024.
As announced by the IRS, the annual limit for individual plans will increase to $4,150, up from $3,850 in 2023, and the limit for family plans is jumping from $7,750 to $8,300. Those aged 55 or older will be able to contribute an additional $1,000.
How to Open an HSA
• Research HSA providers online.
• Check with your health plan if it has partnerships with financial institutions that offer HSAs.
• Ask your bank if they offer an HSA option that meets your needs.
What to Keep in Mind When Choosing an HSA
• Some HSAs have associated fees, such as charges for opening or closing the account and monthly maintenance fees.
• Options, services, and banking features, such as debit cards and online banking, may vary by HSA provider.
• The way you make your pre-tax deposits into your HSA may also vary.
Source: CNBC