How To Maximize Your Health Savings Account (HSA)

Many employers are looking for ways to cut the amount of cash they have to lay out for their employees’ health care needs. One way is to offer high deductible health plans that are paired with a health savings account or HSA. What is an HSA, you may ask? It’s an account in which you can make deposits which can be later utilized for medical expenses. Importantly, it’s a “tax-advantaged” account, meaning you should not have to pay income taxes on the funds you deposit in such an account. This type of plan is categorized as a “consumer-driven” health care plan, a term which has been getting a lot of buzz as more and more employers switch to such plans.
As you can imagine, the relative newness of HSAs can make them a bit confusing. Here are a few tips to help you manage yours.
First, as with all financial benefits from your employer, enroll as quickly as possible. Then take full advantage of any employer contributions. Some offer a $250 deposit for non-smokers. Others offer a $500 contribution if you submit to yearly blood tests for cholesterol and glucose levels. If you sign up for these contributions, you will have to match them over the course of a year, but your employer will deposit the money right away. That gives you immediate cash for your family’s health care needs.
Be aware of what expenses you can use the money for. There are very few limits on what you can pay for medically. Problems arise when people start spending the money without having some sort of knowledge base. Bandages, crutches, contacts and contact solution, breast pumps and lactation supplies, diabetic testing equipment and supplies are all approved expenditures. You can use the funds to meet your deductible, as well. On the downside though, you can not pay health insurance premiums with an HSA unless it is covering COBRA benefits, Medicare benefits, or health insurance after the age of 65. Another downer for this type of account is that it will not reimburse you for expenses. You must pay with your HSA debit card or check at the time of service.
Here is the best benefit of an HSA, especially when compared to a flexible spending account, the money rolls over each year. That allows you time to save for expected large expenses, like braces. At five grand or more, braces could devastate a budget if you do not prepare. With your HSA you could spread that expense over several years.
All of the information in this article are generalizations. Your plan may have more specific guidelines and different contribution amounts. The best thing you can do is ask for all of the information that your HR representative can give you.