Health Savings Account

What’s a HDHP and HSA?

Simply put, a Health Savings Account (HSA) is a savings account where tax-free deposits can be stored for future or current medical expenses. In 2004, Congress created the Health Savings Account (HSA) as a means to reduce the continually growing cost of healthcare and increase the efficiency of the healthcare system. Coupled with a high-deductible health plan, HSAs offer consumers a way to have more control over their healthcare choices and costs while simultaneously saving for future health expenses.
An HDHP is an alternative to the plans offered by HMOs and PPOs that promise low deductibles but charge high premiums. Instead, an HDHP has lower monthly premiums, pays for catastrophic medical expenses, and allows consumers to set aside tax-free funds to choose how they want to spend their money on routine healthcare.

Why an HSA?

Many are unable to keep up with rising premiums, employers are being forced to pass on costs to employees, trim benefits, or even worse, eliminate coverage entirely. On top of that, many healthcare plans are restricting medical benefits or making it increasingly difficult to get care. As a result, more Americans are turning to consumer-driven, high deductible health plans (HDHPs) with accompanying tax-advantaged Health Savings Accounts.

Benefits of an HSA

An HSA offers you spending and decision-making flexibility not available with most traditional health plans. Your contributions are made from pre-tax dollars and can be withdrawn tax free as long as they are used for any qualified medical expenses, even if the expense is not covered
by your HDHP. And this is where one of the major advantages lies. Qualified expenses can include:

  • routine healthcare
  • preventative care
  • dental care
  • non-prescription drugs

For example, most health insurance does not cover the cost of over-the-counter medicines, but HSAs can. You can use the HSA to pay for dentistry, eyeglasses, and psychotherapy. You can even pay for chiropractic, corrective eye surgery, homeopathy, and many other alternative medicine options. In addition, you can use out-of-network providers at any time, without prior approval from your insurance carrier.

Your HSA is not tied to a particular HDHP or calendar year. Unused funds automatically roll over for future expenses. Over time, if your expenses are low, you can accumulate a significant nest egg that can be used for future healthcare or even retirement.

As long as you are using the funds for qualified medical expenses, you can withdraw as much as you want, whenever you want. If the funds are not used for qualified medical expenses, the distribution is taxable. And if you are under the age of 65, a non-qualifying withdrawal is subject to a 10% penalty. However, if you are over age 65, you can use the funds to pay for non-medical expenses. The money you withdraw will still be taxable at you current tax rate, but you will not pay a penalty.

Self-Direct the Funds in Your HSA

Build wealth and secure your future. Not only does an HSA give you control over your medical expenses, you can control how your money is invested. Self-direction allows you access to a larger range of investment opportunities than those offered by traditional HSA account administrators. With a self-directed HSA account, in addition to CDs and mutual funds, you can invest in real estate, notes, tax liens, and much more-all permitted by the IRS. Through self-directing your HSA funds in investments that you know and control, there is greater opportunity for you to create wealth.