What Is An HSA?
- What is a Health Savings Account (HSA)?
- A personal financial account for payment of all medical, dental, vision, and prescription health care expenses free of income or payroll tax. (2012 annual maximum contribution: $3,100 single / $6,250 family)
- Why do HSAs exist?
- To provide a substantial tax reward to individuals who take more financial responsibility for their health care by having a qualifying high-deductible health plan.
- How much do you save in taxes?
- Up to $2,150 per year, based on 25-35% combined payroll & income tax rate. Interest or growth in your HSA is also tax-free if used for health care.
- Who owns the money in your HSA?
- You do. There is no "use it or lose it" provision. When you or your employer puts money in your account, it is yours forever even after you leave your employer.
Cost of Health Savings Accounts versus Traditional Care
There are pros and cons between Traditional and High Deductible Health Plans and it can depend on your annual cost of care. With traditional plans, individuals start off with higher premiums but lower deductibles. Through the rest of the year, individuals continue to pay co-pays or co-insurance.
With High Deductible Health Plans, partnered with an HSA, the premiums are smaller and you only spend when you have a health expense. If you spend little on medical expenses, your total out of pocket is smaller. If you spend a lot, you spend it up to your deductible. After that, expenses are capped for the rest of the year — and you can still pick up tax savings on other eligible medical expenses such as dental, prescription, or vision plan expenses, as well as common expenses like contact lens solutions or band-aids.
Qualified Medical and Dental Expenses
Examples of qualifying medical and dental expenses include:
- Doctor's office visits
- Dental care and braces
- Prescriptions
- Glasses, contact lenses and accessories, LASIK surgery
- Chiropractor
- Acupuncture
- Hearing aids
- Long-term care
- Smoking cessation programs
- Physical therapy
- Psychological counseling
- Birth control and vasectomy
- Transportation expenses
- Bandages and crutches
- NEW! Breast pump and nursing supplies
See the full IRS list of qualifying and non-qualifying expenses.
