Making the most of your HSA and HDHP

Posted: May 2, 2018

For those of you who have a high deductible health plan (HDHP), you may be wondering how to best take advantage of your plan. With lower monthly premiums but a higher annual deductible, an HDHP takes a bit of management to really maximize its benefits. HDHP’s are one of the main ways in which insurance carriers attempt to keep monthly premiums low. But that’s just one of the benefits that comes from having an HDHP and an HSA.

What is an HSA?

An HSA, or Health Savings Account, is a special bank account you use to pay for medical expenses. Only those enrolled in an HDHP are eligible to establish and fund an HSA. Designed to work together with an HDHP, an HSA helps keep premium costs low. An HSA is a bank account that an individual is allowed to make contributions to throughout the year. There are different limits depending on whether the owner of the HSA has an individual or family policy. Those with individual coverage can contribute $3,450 during 2018. Those with family coverage can contribute $6,850 during 2018. You can then use these contributions to pay for qualified medical expenses.

The logic behind the HSA is that, when used with a HDHP, it can help prevent major out of pocket expenses. The HSA is used to cover routine, smaller medical expenses, while the HDHP offers protection in the event of a major health crisis or emergency.

One of the major benefits of an HSA is that any contributions made rollover to the next year. The funds are non-forfeitable, meaning they are yours until you use them up. It is therefore possible to build up a sizable savings that are available to help you cover medical expenses. The HSA is also portable. Even if you change jobs, or change plans, your HSA funds are still available to you. If you move from an HDHP to a non-HDHP, you cannot continue to make contributions to your HSA, but you can still use it to pay for qualified medical expenses.

What are the benefits of an HSA?

There are several advantages to making contributions to your HSA. One of the most important of these is that HSAs are tax-advantaged accounts. This means that every dollar you contribute to your HSA reduces your overall tax burden. Second, you can change the contributions you make to your HSA at any time. If you know you have a major expense coming up, you can make a one time contribution (as long as you don’t go over the limit!), and then use that to reimburse yourself. Further, withdrawals from your HSA are also tax-free, provided they are used for a qualified medical expense. Thus, for tax purposes, it is important to save the receipts of purchases made using your HSA.

An HSA is also a tool to fund your retirement. Individuals over the age of 55 are able to make extra contributions to their HSA. After the age of 65, all withdrawals made from an HSA are tax-free. In these cases, a long standing and well funded HSA can be another resource for retirees over the age of 65, as it can be used for both medical and other expenses.

In addition to making contributions to grow your HSA, they also gain interest like any savings account. This interest is also tax free. Some HSA’s also have investment options, depending on the provider.

Is an HSA right for you?

HSA’s and HDHP’s aren’t for everyone. It is important for an individual to evaluate their current health situation. Younger, generally healthier people who only use the doctor for routine physicals and other health maintenance may be drawn to the HDHP and HSA because of the low monthly premium and tax advantages. Every individual situation is different, however, and should be reviewed with a doctor and your benefits advisor. If you have questions about an HSA, HDHP, or any other benefits questions, please feel free to contact us. We can be reached at 612-492-9320, or by email at info@morganplan.com

 

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