How to Start a Health Savings Account

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With all the controversy and questionable future of the coverages offered by the Affordable Care Act, many people are considering new options and looking for tips on trying to save money on health insurance. Health Savings Accounts (HSA) are one interesting option to save money using health care plans that may be more affordable than you realize.

What Is a Health Savings Account or HSA?

A Health Savings Account is a special type of tax-free savings account that you can use to save money for medical expenses when you are enrolled in a qualified high deductible health care plan.

Health Savings Accounts have many benefits and can double as a savings vessel for you if you do not use the money in the plan for medical expenses.

Health Saving Account or HSA supplements one’s current insurance coverage. Your Health Savings Account will help you pay for medical expenses that the insurance policy will not pay because they fall under the high deductible. Besides helping you set aside money to pay for out-of-pocket expenses that their health insurance will not pay for, another benefit of a Health Savings Account is that you can deposit money in an HSA before paying taxes on it. In addition, Health Savings Account plans may let you earn interest on their money when it is sitting in the account.

"Trumpcare" Looks to Expand on Health Savings Accounts

Although many of the implications of a revised health insurance act, or "Trumpcare" cause many concerns, one aspect of looking for health insurance with low rates is looking into health insurance plans that allow you to open a Health Savings Account or HSA.

Because of the favorable changes to HSA's the current administration is looking to push forward, Health Savings Accounts are becoming more appealing, and possibly more flexible. For example, one revision on the table is possibly decreasing the penalty for withdrawing money from an HSA for non-medical expenses prior to age 65 from the current 20% (under Obamacare) to 10% (under proposed Trumpcare).

 

Is a High Deductible Health Plan and HSA Really a Good Idea?

According to Caitlin Donovan, Director of Outreach and Public Affairs at National Patient Advocate Foundation,in an interview for our article on "10 Ways to Keep Your Health Care and Insurance Affordable", Health Savings Accounts are a good idea if you have one. Ms. Donovan recommended continuing to use it. With the future of healthcare plans a little uncertain, one thing that has favorable futures is the expanded use of HSA's in the Republican's plans and "Trumpcare"

What Are the Advantages of an HSA?

Health savings accounts are interesting options to save money on health insurance and possibly long term. Here are 5 advantages of an HSA that make it worth considering as a tool to save money on health insurance plan costs, as well as a strategy to save money.

5 Advantages of an HSA

  1. You can put money into your HSA before it is taxed. This means you can put up to the specified limit aside in your health savings account, tax-free. 
  2. Interest gained on your money in an HSA is also tax free.
  3. If you do not use the money in your HSA, it carries over for the next year, you do not lose your savings. Imagine how these amounts can easily build up to thousands of dollars for you in a short time, tax free, if you do not need to use it for medical emergencies.
  1. Another benefit of HSA's are that if you reach the age of 65, and have been lucky enough to not use all the money left in the Health Savings Account, you may be able to use it tax-free in retirement. This is huge because it is like a second retirement fund, that saved you money on health care plans along the way.  
  2. If you end up deducting money from your HSA for medical expenses, you may even qualify for higher tax deductions on medical claims depending on varying circumstances. 

Tips for Choosing a Good HSA Account

Because HSA accounts are not only used to reimburse medical expenses to yourself but can also act as savings vessels for your future if you do not use them, then it is important to think of this as an investment type of account.

  • Beware of high administrative charges or fees. 
  • Is the administrative fee waived when you have a specific minimum balance? 
  • Ask if you will be able to manage your account online
  • Will you have a debit card?
  • Find out what the process is when you need to withdraw money for a medical claim or get reimbursed for qualified expenses. Do they make the process easy? Are there delays?
  • What are your investment options?

Lowest Fees for HSA's

Although you do not need to have a minimum balance or amount of money in the account to have an HSA, some administrators (the bank, credit union or insurance company who manages your HSA) may waive fees once you have hit the minimum balance. Obviously, a plan with a lower minimum balance may save you a lot of money in fees when you are just starting out with your HSA.

Learning about the fees your HSA administrator charges you may result in huge cost savings, and should definitely be an important question when choosing the best place to open your HSA. 

Where To Go To Set Up a Health Savings Account

Starting a Health Savings Account is not difficult. You can set up your account with:

  • Banks
  • Brokers and financial advisors
  • Credit Unions
  • Insurance Companies

Banks, Credit Unions, and Insurance Companies will only have their own specified plans to offer you. Brokers will have several options. It might be a good idea to ask your bank about their plans, and then speak to a broker who can review some options. Use the tips for choosing a good HSA above to evaluate which HSA will be best for you. Having the help of a licensed broker or financial advisor may give you more advantages. In the end doing a little bit of research may help you earn more money in interest, spend less in fees and give you more control of your account.

What Are the HSA Contribution Limits?

The HSA contribution limit in 2018 will be $3450. Comparatively, in 2016 the individual plan limit was $3,350, this was increased to $3400 for individual coverage in 2017. The cap on contributions has been rising about $50 a year for inflation adjustments, which allows for significant savings that can build quickly in your HSA. 

For families the 2018 HSA limit is $6900, this will rise from the 2017 limit of $6,750. The family plan contribution limits go up by $150 for the 2018 contribution year compared to the previous year.