I wrote the following blog post for some friends in San Antonio that have a start-up called BudgetDoc.Com. Their mission is to make affordable healthcare possible by providing relevant information to patients, enabling them to make informed choices and assisting medical professionals with the tools to run more efficient practice. Currently, they are honing their craft locally in San Antonio. Look for them nationally soon!
- A health savings account (HSA) is a bank account with special features. It allows you to save money for health related expenses and the money that you save is tax deductible. While you are waiting to use the savings it can be invested in mutual funds.
- Qualified medical expenses include clinic visits, prescribed medications and labs. Also included are eye glasses, orthodontics, physical therapy, and acupuncture along with a number of other expenses. You may pay qualified medical expenses for yourself, your spouse, dependents, or children under age 27 even if they are not on your insurance plan. Find out more about qualified medical expenses here (http://www.irs.gov/pub/irs-pdf/p502.pdf).
- An HSA must be paired with a high deductible health plan (HDHP). Employers may offer these but you are able to purchase them as an individual as well. To qualify as a HDHP the plan must have a minimum deductible of $1,250 and a maximum deductible of $6,250 for an individual or a minimum deductible of $2,500 and a maximum deductible of $12,500 for a family. You may find quotes for an HDHP at http://www.hsatexas.com/ or at http://www.ehealthinsurance.com/.
- Maximum HSA contributions are $3,250 for an individual and $6,450 for a family during 2013.
- You may take your money out of the HSA to pay for non-health related expenses but you will pay a penalty of 20% of the distribution if you do this before the age of 65.
Pros and Cons
- It’s yours- Your HSA goes where you go. If you lose your job or change jobs you still have access and control of your HSA.
- It’s yours next year as well- The savings that you don’t use this year rolls over and is available to you for qualified medical expenses or investing next year(as opposed to losing unused funds in an FSA).
- Preventive care included- HDHP Plans may cover preventive care (mammograms, vaccinations, etc) even before the deductible is met.
- Supplement your retirement account- After 65, you can use the account for expenses without penalty but you are subject to income taxes.
- Let your OCD behavior shine- Meticulous record keeping is required. If the IRS audits you, your records must prove that you paid for only qualified medical expenses with your HSA.
- HDHP’s have high deductibles- Would a medical emergency that caused you to have to met the deductible before you had time to save a sufficient amount cause a severe financial hardship? If so, an HDHP/HSA may not be the right plan for you. If you could borrow from a family member or sell a possession to meet the deductible, then the premium savings provided by this type of plan may be worth the risk.
- Baby on board- Currently, in Texas, HDHP’s that are offered to individuals don’t offer maternity care. Group HDHP’s may cover maternity care. As the Affordable Care Act is enacted this information may change. Did I mention that condoms and home pregnancy tests are considered qualified medical expenses?