May 11, 2024

What Is a Health Care Savings Account?

By Geraldine

An HSA allows you to set aside funds on a pretax basis in order to cover qualified medical expenses such as deductibles, copayments and coinsurance premiums – not covered by insurance plans or benefit plans. Furthermore, these savings accounts allow for premium payments.

HSAs are also convenient portable accounts that stay with you even when changing insurers or retiring; you can invest your funds to earn interest and build your assets over time.

No matter if it is an unexpected ankle injury or the chronic cough of a child, unexpected medical expenses can create strain in family budgets. By opening up a tax-advantaged savings account now, families may find some relief in these times of uncertainty.

Employers increasingly offer high-deductible health plans (HDHPs) coupled with health savings accounts (HSAs). This combination provides an effective way for employees to save for future medical costs tax-advantageously; however, not everyone is ready or eligible to move towards this route and HSAs may not be readily accessible to all American citizens.

The Federal Employees Health Benefits Program (FEHB) offers HDHPs with Health Savings Accounts (HSAs) to eligible federal employees. Each month, your HDHP credits a portion of its premium to an HSA; you can choose to contribute additional pretax dollars each month as well.

HSAs offer the ideal way to save for future medical costs: flexible, portable and tax-advantaged savings accounts that offer tax breaks for your health expenses.

These real-life scenarios will help you decide whether a Health Savings Account (HSA) is right for you:

Maxine, a stay-at-home mom, is in search of ways to decrease her out-of-pocket medical costs. Knowing that allergies and an occasional earache for her children can add up quickly, she opens an HSA with her HDHP and funds both accounts with pretax money from both sources (HSA + LPFSA), which will allow her to cover vision and dental expenses as needed.

Sally anticipates not meeting her health plan deductible this year and plans on using some of her HSA money from investments and Limited Purpose FSAs to cover anticipated medical expenses. In addition, some will remain invested within her HSA for later access in case any unexpected needs arises.

HSA funds are yours to keep even if you leave Federal service or change plans, with one exception: They can only be used to pay medical expenses; not non-medical bills. But for those who can plan ahead and save early enough, an HSA offers the ideal combination of lower out-of-pocket costs and savings for retirement.