Can a Health Savings Account Save You Money?

Smiling female doctor with tablet ready to meet with patient
Posted by Atlantic Financial Federal Credit Union on Budgeting & Saving

It’s open enrollment season and time to decide whether you should add, terminate, or change health insurance plans. A review of your family’s medical expenses confirms that your household’s healthcare costs are on the rise. Whether due to an increase in household size, change in medical condition, or another reason, you’re ready to re-evaluate your health coverage options.

The decision isn’t easy.

  • Should you choose a low deductible plan? Monthly premiums are higher, but there are fewer out-of-pocket costs before insurance kicks in for medical services.

OR

  • Should you enroll in a high-deductible plan? The monthly premiums are more affordable, but a medical incident could result in higher out-of-pocket expenses.

The right plan will depend on your health status and finances, but a Health Savings Account (HSA) should be a factor in your decision.

HSAs are tax-advantaged savings accounts available to individuals and families enrolled in a qualifying high-deductible health insurance plan. Account funds are intended to be used to pay for out-of-pocket costs that the insurance plan won’t cover, including expenses below your plan’s deductible. For example, if a family with an annual deductible of $2,700 makes a medical claim for $5,000, they must pay $2,700 before the insurer covers the balance of $2,300. Account holders can use HSA funds to pay the $2,700. Funds can also be used to cover other qualified healthcare expenses beyond the annual deductible.
Here are several program highlights to help you decide if an HSA is a good fit for your situation.

Health Savings Accounts Cover Qualified Medical Expenses

Use money deposited in an HSA account for qualified medical and dental expenses, as defined by the Internal Revenue Service. Examples of covered expenses include:

  • Health insurance deductible and co-insurance payments
  • Prescription drugs
  • Dental care
  • Vision care
  • Medical Equipment
  • And more

IRS Publication 502 provides an extensive list of qualified expenses.

Health Savings Accounts Have Multiple Contribution Options

Grow your HSA with contributions from personals funds, employer contributions, or payroll deduction/direct deposits. Account holders can receive tax savings on all deposits regardless of the source. For example:

  • Deposit personal funds on a post-tax basis, then deduct contributions on your Federal 1040 tax filing to receive the pre-tax benefit
  • If your employer offers an Employer Contribution Plan, those deposits are made on a pre-tax basis
  • You can make pre-tax HSA contributions from your paycheck with payroll deductions or direct deposit

Annual contribution limits apply to the account based on whether the health plan covers an individual or a family.

2019 Annual Contribution Limits:

  • Individual (Self): $3,500
  • Family (Self + at least one other person): $7,000

2020 Annual Contribution Limits:

  • Individual (self): $3,550
  • Family (Self + at least one other person): $7,100

Individuals 55 and older may surpass annual contribution limits with an additional “catch-up contribution” of $1,000.

You own the HSA account, so there’s no rush to spend the funds by December 31 of each year. Decisions regarding when and how you contribute are up to you. If you change jobs, retire from the workforce, or exit a high-deductible health plan, the money is still yours to use. Unused contributions carry over each year.

When you open an Atlantic Financial Federal Credit Union (AFFCU) Health Savings Account, you earn tax-free interest on the account balance. Our HSAs have no monthly fees or minimum balance requirements. As with other deposit accounts at AFFCU, the National Credit Union Administration insures the HSA.

Health Savings Accounts Are Easy to Use

Access your deposits using a free AFFCU HSA VISA® debit card. Withdrawals are tax-free when used for qualifying medical expenses at a variety of locations, including the doctor’s office, pharmacy, and vision center. If funds aren’t available at the time of purchase, reimburse yourself for those qualified costs once your account balance increases.

Health Savings Accounts Have Eligibility Requirements

There are four basic qualifications for participation:

  • You must be enrolled in a high-deductible health plan (HDHP)
  • You cannot be enrolled in Medicare
  • You cannot be covered by a non-HDHP
  • You cannot be claimed as a dependent on someone else’s tax return for the previous year

Unsure if you’re eligible or have a question about a particular requirement? Speak with your human resources department or tax advisor to confirm eligibility.

An HSA’s tax-advantages, ability to earn interest on account balances, and zero monthly maintenance fees offer account holders a way to save money on medical expenses. Ready to learn more or have a specific question about HSAs? Visit AFFCU’s Health Savings Account page and select “Ask a Question” or fill out the contact form below. We’ll respond to you within one business day. Or, if you’re ready to save on healthcare costs, open an AFFCU HSA today!