Healthy Saving Accounts

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What is an HSA?

Understanding a Health Savings Account

A Health Savings Account or HSA, is an interest-earning, tax-free account that is an option with certain qualified health insurance plans. You open your HSA with a bank or other financial institution. Then you can contribute and draw from that account, just as you would from any other savings account. However, funds in an HSA must only be used for qualified medical expenses; otherwise, they could be subject to taxes and other penalties.

What are the rules of an HSA?

Here are important rules to consider with regards to qualifying for and using a Health Savings Account:

  • You must have a qualified High Deductible Health Plan – In order to open an HSA, you need to be enrolled in a qualifying High Deductible Health Plan (HDHP). A qualified HDHP has specific limits for the annual deductible and maximum limits for out-of-pocket expenses. These limits are defined by the IRS and change annually.
  • Under Age 65 – In order to qualify for an HSA, you must be under the age of 65 and not enrolled in Medicare.
  • No other health plans – Your High Deductible Health Plan must be your only health plan; you can’t be covered by any other health insurance.
  • Open an account – Once you have purchased a qualified health plan that is HSA eligible, you can set up an HSA through your bank or other IRS-approved HSA trustee.
  • Tax-free, interest-earning – One of the major benefits of an HSA is that the funds you contribute to your account will be interest-earning, tax-free and have no use-it-or-lose-it limits; this means if you don’t spend all of the money you contributed to your HSA account in a year, the balance rolls over to the next year, continues to build interest and maintains its tax-free status.
  • Funds used for qualified health-related expenses – The money you contribute to your HSA is meant to be used for medical expenses such as deductibles and co-pays. You can withdraw funds from an HSA for nonmedical purposes but be aware that you will then have to pay taxes on the money and a penalty fee if you withdraw before you are 65. If you withdraw money after you turn 65, you will only pay taxes and not a penalty.

Advantages and Disadvantages of an HSA

As with any health plan, there are advantages and disadvantages to choosing a High Deductible Health Plan with an HSA. These are important to keep in mind when deciding on the right type of plan for you and your family.

HSA Advantages

  • HSAs allow you to set aside money that can go towards meeting the high deductible of your chosen qualified health plan
  • HSA contributions don't count toward your taxable income for federal taxes
  • HSAs provide a way to pay for qualified healthcare expenses now and, because the money you save earns interest, they allow you to grow your savings for future healthcare needs
  • The money you contribute always belongs to you and unused funds carry over from year to year, so you won’t have to worry about losing your money
  • Your HSA belongs to you, so any money in your account, including any your employer puts in, goes with you no matter where you work

HSA Disadvantages

  • It may be difficult to set aside funds into an HSA account if you struggle financially or have lots of medical expenses
  • If you struggle to put money into an HSA, you may avoid medical visits due to having a high-deductible and no immediate funds on hand to pay for medical services
  • You will be taxed on any money you withdraw from an HSA for nonmedical expenses and could incur other penalties
  • It can be hard to accurately budget for medical expenses due to the unpredictable nature of an illness

Humana provides much more information on HSAs and High Deductible Health Plans throughout Continue your education with these helpful resources:

Find even more information about HSAs here:

Discover Humana’s HSA eligible plans: visit the following link, then choose your State and when the plan options appear, scroll down to the “May be health savings account eligible” section to see which plans are HSA eligible.

Learn more about Humana’s HSAs that might be offered by your employer:

Employers with 2-99 employees interested in offering an HSA eligible plan can visit:

Employers with over 100 employees looking to offer an HSA eligible plan should visit:

Learn more about HSA, FSA and HDHPs

Check out a short video that explains HSAs and how they help you control your healthcare dollars.

How do I budget for healthcare?

Watch this helpful video which provides great tips on budgeting for healthcare, including the use of HSAs.

Many great options

There are a variety of ways you can pay for eligible healthcare expenses. HSAs are one option but there are other great options you may not have considered like FSAs and PCAs.

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