Why Do You Have An HSA?

The presents have been opened and some have already been exchanged. Now it is time to take stock of what we actually purchased for ourselves and our families this year.  And while we are second-guessing that hoverboard decision, we might also want to make time to understand that new health policy we purchased for next year.

Some of the most popular policies in our market carry the letters HSA in their names. Many of you intentionally purchased this type of policy and intend to take full advantage of the tax advantages.  Most people were simply purchasing the cheapest policy available, the one with limited benefits before you reach a high deductible.

To carry the HSA designation, the health policy must have a high-deductible (HDHP). The plan can not have office or Rx copays prior to the deductible being met.  The Patient Protection and Affordable Care Act (PPACA or Obamacare) requires the policy to include “first-dollar” coverage for preventive services such as an annual routine physical, medical screening tests (like a colonoscopy), well-baby care, and certain medications.  The maximum-out-of-pocket for 2016 is $6,550.

If your policy meets the above criteria, you are allowed to open a Health Savings Account.

It is only cheap insurance unless you open the Health Savings Account.  The HSA may be opened through your insurer or at almost any bank.  The money that you deposit into the account is tax deductible.  You may then use the money, tax free, to pay qualified medical expenses. And the account isn’t use it or lose it.  Unused funds roll over to the next year.

2016 Contribution Limits

Individuals                 $3,350

Family                       $6,750

HSA Catch-up Contributions $1,000

Contributing to your Health Savings Account does not solve all problems. Lots of you are singles purchasing $6,000 deductible policies.  Even a maximum contribution to your HSA still leaves thousands of dollars of exposure should you happen to have an accident or unexpected illness.  The best of these policies pays 100% of covered charges once the deductible has been met.  Some still have coinsurance and only pay 80% or 70% until you have reached your maximum-out-of-pocket.

Whether you intentionally purchased a High Deductible Health Plan with the goal of opening a Health Savings Account or just bought the only insurance you could afford, it is important that you try to make the policy work for you.  Either way, lose the hoverboard.