Health savings accounts (HSAs) are savings plans that allow health care consumers to set aside tax-free money to cover current and future qualified medical expenses. An HSA allows account holders to set aside as much as $3,350 for individuals and $6,750 for families annually before federal taxes to cover out-of-pocket healthcare costs, for individual and family coverage respectively in 2016 (and indexed annually thereafter).
Contributions to HSAs are made annually and can be made by both employers and individual account holders. Unlike flexible spending accounts (FSAs) in which funds must be used within a certain period of time or forfeited, unspent funds in an HSA can accumulate over time as tax deferred savings. If the money is used for medical expenses, it is never taxed. To enjoy the tax benefits, you’ll also need a HSA compatible high deductible health plan (HDHP). When paired together, funds from a HSA can be used to cover the deductible and other cost-sharing aspects of an HDHP, as well as other qualified medical expenses, not necessarily covered by the HDHP (such as Lasik surgery or other elective medical treatment).
To learn some more about HSAs, listen our Matt Byrne’s internet talk radio show,
Click here to start shopping for your HSA or call us at (866) 577-3620.
Under health reform, prevention and early detection is very important and covered under most plans. This means that most prevention and diagnostic services that are age and gender appropriate will be covered at 100 percent with no out-of-pocket cost to the patient:
- Free Annual Physical
- Free Cholesterol Screenings
- Free Mammograms
- Free PAP test
- Free Prostate Exam
- Many other preventive services
As we indicated before, a Health Savings Account also has tax advantages. It’s akin to a medical IRA.
Why would pay for medical expenses using money you’ve already paid taxes on?
Learn how Health Reform will affect your Health Savings Account:
The Patient Protection and Affordable Care Act Public Law 111-148, also known as the Health Care Reform law, makes numerous changes to how health care works in the United States. Of particular interest to HSA owners:
New plans will be required to cover preventive services with no deductible or copay. This does not affect “grandfathered” plans already in force.
Non-prescription medication is no longer considered a qualified medical expense after January 1, 2011.
The penalty for withdrawals from an HSA for non-medical expenses increases from 10% to 20% after January 1, 2011.
Learn more by reading our Health Savings Account HSA FAQ.
How It Works
1) You enroll in an HSA-qualified HDLP. You’ll pay lower premiums and have an account designed to help you pay for qualified medical expenses.
2) You establish an interest-bearing HSA.
3) You and other individuals may make tax-advantaged (deductible) contributions to your HSA, up to certain limits (For the 2016 tax filing its $3350 for singles and $6750 for families)
4) You may use your HSA debit card or personal check* to pay for qualified medical expenses. Your local bank can help establish an HSA bank account. We suggest using H S A Bank. They have a suite of 18 mutual funds you can use and allocate. The URL is: https://secure.hsabank.com/enrollment?ain=1020030
What are Qualified Medical Expenses?
Eligible medical expenses are defined as those expenses paid for care as described in Section 213(d) of the Internal Revenue Code. Additionally, the IRS allowed some over-the-counter drugs to qualify as eligible medical expenses.
This is a partial list of eligible medical expenses. Visit the IRS’s website (Publication 502) for a more complete list of eligible medical expenses.
Click here to Find Health Insurance Quotes in Ohio and to start shopping for your HSA or call us at (866) 577-3620.
Our company president hosts a weekly radio show called Navigating Health Insurance, below is a transcript of a recent show. You can listen to a records here, http://www.blogtalkradio.com/myhealth
Medical IRA – Mastering the Health Savings Account (HSA)
By: Matthew Byrne of MyHealthQuoter.com
Aired: 1/3/2012 4:00 PM UTC
Description: There are plenty of advantages to a Health Savings Account. Funds rollover each year, there’s no use it or lose it (unlike a flexible spending account, FSA) and the account is FDIC insured. But the biggest advantage is the tax savings. One of the most attractive features of HSAs is their preferred tax status. Every dime you contribute into the account is tax deductible up to $3,350 per year for an individual or $6,750 for families (2016). This tax deduction is available even if you do not itemize your deductions on your federal return. As long as the money is spent on medical-related items, you never pay income tax on the money that you contribute or the interest it earns. Unlike a flexible spending account, you are not required to spend the money within a certain timeframe, but can let the money grow year after year.
Contact us at (866) 577-3620
Your Host: Matthew Byrne Mr. Byrne is also co-founder and CMO of Spiralight Group & MyHealthQuoter.com and has developed proprietary systems and processes that leverage innovation to deliver cost savings to his clients. Mr. Byrne holds a Bachelor of Arts from Boston University and holds a life and health insurance license.
View our episode called Secret Sauce,which explains those difficult insurance terms like deductible and coinsurance,
[Start of Transcript]
Matthew Byrne: Welcome to Navigating Health Insurance. I am your host, Matthew Byrne. Thanks for joining us. We are going to teach you everything you need to know about that, so thanks for joining us. You need to learn more about me? My website is http://www.myhealthquoter.com which is about 250 plans from 10 different health insurance companies then you can shop and toggle base on deductible and carrier and price so feel free to visit my website.
If you need to reach me directly any time to answer any questions offline, you can call me at (866) 577-3620. Again, this is Matt Byrne and you are tuned in to Navigating Health Insurance. We are going to talk about the health savings account.
What do you need to know about the health savings accounts? Well, first and foremost, there are two separate components to a health savings account. Component one is the health savings compatible health plan. So, that is the health insurance policy. Whether you get it through your group health insurance or through an individual policy, a health savings account high-deductible plan would typically have a deductible above $1250 sometimes much more, $3000, $5000, $7000, not uncommon and they cannot offer first dollar coverage on any benefit except for preventive so what does that mean?
How much is my copay with a Health Savings Accounts?
Well, a co-pay is an example of first dollar benefit. You do not need to satisfy any deductible requirements on a co-pay plan before you have that$25 doctor’s office co-pay benefits. So that is an example of first dollar benefit.
So a health savings account does not have doctor’s office co-payments and it does not have prescription co-payments. Your co-pay will be zero and you will pay out-of-pocket for those services until you met your deductible. So typically, H S As have really good free preventive benefits. Then the deductible is your responsibility and after you’ve met it all medicines and doctors will be covered at 100%. There is no co-pay above the deductible after you have already met the deducible. Anytime you are looking at a health plan, you have got to ask what is my out-of-pocket maximum.
Do Health Savings Accounts in Ohio Have Lower Out of Pocket Maximums?
Okay let’s define out of pocket maximum, that is deductible plus coinsurance equals out-of-pocket maximum. So if you were to blow your ACL out at the gym and it was a $20,000 claim to get it fixed and you had a $1500 deductible with no coinsurance, your max out-of-pocket will be $1500 and then they would take care of everything above that.
If you have a deductible of $1500 and 80:20 coinsurance plan, you can pay the first $1500 and then the carrier would pay 80%, you would still pay 20% until you hit the coinsurance limit,
So when you are sharing at 20%, you are still sharing all the way up to some other number, what I call the second deductible, for maybe another $1,500 (sometimes more). So in this example, your max out-of-pocket deductible plus coinsurance limit equals the max out-of-pocket which would be $3000. So for all intent and purposes think of coinsurance is your second deductible. So I have got my first deductible and if I have any Coinsurance, I have a second deductible, those are added together equals the out-of-pocket maximum.
The health savings accounts typically have much lower out-of-pocket maximum than their Traditional co-pay counterparts.
Now let us talk about the money side. So how does money get into my health savings account? Who pays for that? So first of all, a couple of things you want to know about that money is one, any money that goes into it whether it is funded by your grandparents, yourself, your employer, that money is tax-deductible, okay? You will not pay any tax on that money. Secondly, that money never expires. It rolls over year after year. You need not worry about like a flexible spending account or if you do not use it or lose it, this is not one of those situations. Health savings accounts are like war chest. You put money into it over and over, and over again, and they never expire and they never run out and you can take 100% of the tax deduction based on how much you deposit into it. So it is not how much you spend out of it. It is how much you deposit into it.
That is a huge differentiation, huge detail that a lot of people are not fully aware of. So if you made a $3000 contribution to your health savings account in 2010, you would take the full $3000 of deduction on your April 15 tax return. Even if you only spent $200 or $300 out of that account, you would take the full $3000 and the reason why that is, is that you are pledging that you are going to use that money on qualified medical expenses. So the IRS knows that you have basically locked that money away for qualified medical expenses and eventually, you are going to have to spend it on qualified medical expenses or they are going to make out like bandits because like your retirement money, if you spend your health saving account money on non-qualified medical expenses prior to age 59-1/2, you have a 10% penalty for IRA. In a health savings account you have a 20% penalty for spending that money in inappropriate ways.
You cannot just go to Hawaii with the money. You have to spend it on qualified medical expenses, but the minute you pledge that you can take a full tax deduction. Something about an IRA and a health savings account, they are similar but the health savings account is actually superior.
Why is a Health Savings Account better than an IRA?
Okay let us talk about an IRA for a minute. If you put $10,000 into your IRA, it will grow tax-deferred. So instead of paying 30% ordinary income bracket, you delay paying taxes until you retire. And when you retired, you would pay your then income tax bracket, say 10 or 15%.
So what is going to happen is you are not going to pay 30% today. You are going to end up paying 10% or 15% when you retire and the money grew defer that entire time. But eventually you are going to pay tax. You are either going to pay 30% now or you are going to pay 10% or 15% when you retire. That is what an IRA looks like.
A health savings account is much better. A health savings account has a very unique and powerful difference. When you spend money on a health savings account, that money, you do not pay 30% on that income today and you do not pay 10% or 15% on it later when you retire, as long as you spend this money on qualified medical expenses, you do not pay any taxes on it, zero. I do not know if a tax shelter or tax protection strategy that is superior to a health savings account.
We have a shopping website for Ohio Health Insurance Quotes where you can make the insurance companies compete for your health insurance that is for individual families and groups but just put in a little bit of information about yourself. We will give you 250 plans from 10 different health insurance companies then you can sort them based on co-pay and PPO versus health savings account and price and various different things. We can of trim that list down to a more manageable size.
If you ever had any questions, just feel free to reach me directly (866) 577-3620. The favorite part of my job is talking to people and educating and coaching them so do not hesitate if you have a question or it is not clear on something, I could not think of anything I would rather be doing than talking to you and people like you on the phone so just give me a buzz.
Make sure your Doctor Codes Services As Preventive.
So health savings account cannot offer first dollar coverage on anything except preventive services so they have phenomenal preventive services. Your mammogram will be free, your Pap smear will be free, your colo-rectal exam, your prostate exam, you cholesterol and blood pressure screenings are all free. You do not pay anything. No co-pay, no sharing, no bill in the mail from your provider afterwards. That stuff is free as long as it is coded as preventive by your physician, you will not pay anything for it, okay? And in this, we are recommended by the American Medical Association so obviously they do not recommend three colonoscopies a year so you are not going to get three colonoscopies a year. But if you are at their age with the American Medical Association says the colonoscopy is necessary and they are not responding to some sort of stomach ailment or family history of colon cancer then that colonoscopy would truly be preventive and routine in nature. If it is diagnostic, if it is treatment, if they are on a fishing expedition to diagnose a problem, that is not a preventive service. That is a very key distinction and it is good conversation to have with your doctor.
So I invite you to kind of have that dialog with your physician and confirm, is this a preventive service? Is this something that I am not going — not have to pay for?
So anything you code as preventive services will be paid for at 100% by my plan. If the doctor plans to do something NOT preventive, such as a diagnostic or something treatment-related, you need to know about that because you will be paying for that, subject to your deductible.
Most doctors are very happy to accommodate, if it is truly in fact preventive. They would gladly code the service as such.
We talked in our prior show about consumerism and consumer-driven health plan and how utilization of the health insurance market is a critical part of how we solve and heal, and get health reform and changes in our industry and each one of us has certain responsibility. We need to become good consumers again, by asking good questions, Why are we doing both of these tests? Why are we doing that blood panel versus the normal blood panel? Why is this preventive versus routine? Are there imaging centers or labs and clinics where I can get this test done with the same quality but at a lower rate then maybe the conventional route. So ask good questions, be a consumer of your health insurance.