Managing HSA Accounts
A consumer driven health care solution is made up of two basic parts. The first is the HDHP (high deductible health plan) and the second is the Health Savings Account (HSA) itself. You need to manage health care spending wisely if you want to keep your expenses to a minimum and get the most out of your health care dollars.
If you have a conventional co-pay health insurance policy you may want to switch to an HDHP as you might save about 40 percent on your monthly premiums. HSA accounts also offer account holders several tax advantages as money deposited into the account is tax deductible, any earnings on the investment is tax-deferred, and withdrawals that are made to pay for qualified medical expenses are tax-free.
One of the best ways to build up long-term savings is to take advantage of the tax-deferred growth. Some HSAs allow you to invest in mutual funds, stocks, bonds, and more.
Stretching Your Health Care Dollar
Even if you cannot save money regularly in your HSA, it’s a good idea to run all medical expenses through the HSA. Each time you have a qualified medical expense you should deposit an amount of money at least equal to the expense.
For example, if a visit to the dentist costs $100, you can deposit $100 into the HSA and can withdraw it immediately if you like. This will enable you to convert the medical expense into a tax-deductible expenditure.
When filing federal and most state income tax returns, the total amount of money deposited in the HSA account that year can be deducted from the amount of total income reported up to the annual contribution limit.
To get the most out of the HSA account, it’s a good idea to move some of the money to investments that offer a higher potential return.
Another strategy is to cover medical expenses from funds outside an HSA account, then keep track of the receipts. You will then be able to reimburse yourself later on. The additional growth that comes from not paying taxes on the investment might be enough to pay all of your medical expenses.
If you are able to save enough, funds in HSA accounts should be able to cover the entire deductible. In 2010 and 2011, the minimum deductibles are $1,200 for individuals, and $2,400 for families. Annual contribution limits are $3,050 for individuals, and $6,150 for families.
When you have enough money in the HSA, you should be able to cover most medical expenses that you’re faced with, especially if your health insurance pays 100 percent after the deductible. As HSA accounts grow, some choose to lower their monthly premiums even more by switching over to a health insurance plan that has an even higher deductible.
Learn more about getting the most out of your health care dollar through our preferred Health Savings Account (HSA) provider, First Horizon Msaver.