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Is it time for you to give Health Savings Accounts (HSAs) a closer look?



Every year during benefits open enrollment it seems to be the same thing: you end up paying more for a health plan that covers less. Your employer offers a lower cost Health Savings Account (HSA) compatible plan, but you’ve been reluctant – it seems intimidating. So, you stick with the high cost plan. Maybe this is the year you break that cycle.

Choosing an HSA-Compatible Health Plan along with saving money into a tax-advantaged Health Savings Account (HSA) could cost you a lot less in health insurance premiums and reduce your Federal Income Taxes. Here’s how it works.

First, to be eligible to open an HSA you must be insured under a Qualified High Deductible Health Plan (HDHP). The term “High Deductible Health Plan” refers to the fact that IRS Regulations say that an HDHP health plan cannot pay any benefits until you have reached your deductible. This allows the insurance company to charge you a lot less in premiums.

Then the idea is that you take the cost savings and contribute them into a Health Savings Account – which is money that you get to keep until you need it rather than paying premiums to an insurance company that they get to keep.

If your employer offers to take your HSA contributions out of each paycheck, and then deposit the money into your HSA account for you, they generally do so before taxes are calculated. This reduces what you would otherwise owe in both Federal Income Taxes and your share of payroll taxes. It is important also to know that you can keep your HSA even if you leave your employer.

So, the way things work with an HDHP is rather than paying a predetermined copayment for things like Physician Office Visits and Prescription Drugs, you pay the network-discounted cost of the Physician Office Visit, Prescription Drug or other covered health services. You pay these expenses out of your HSA and the amount you pay is then credited towards your deductible.

Of course, the network-discounted cost of the Physician Office Visit or Prescription Drug will be more than the pre-determined copayment, but remember, since you saved money on premium costs you put money into your HSA and you will have that money available to pay for those services when you need them. The great thing is that if you don’t need any covered healthcare services, your money stays in your HSA and rolls over year to year – there is no “use it or lose it” rule.

The money that comes out of your HSA comes out tax free as long as you are using it to pay for IRS-approved Health Expenses. Most HSAs come with a convenient debit card that allows you to pay medical expenses directly out of your HSA.

So, during Open Enrollment this year, why not take a closer look at the Health Savings Account option that your employer offers, it could save you thousands of dollars a year in health insurance premium cost and in taxes while allowing you to build up tax-advantaged health savings that can add up to a lot over time.

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HSA Savings Illustration

article by Darrel Sumner

Darrel is the Benefits Specialist and Small Business Champion for Strategic Financial Partners. Darrel works with advisors to develop and implement strategies tailored to help business owners realize the most personal financial benefit from their business. Darrel began his career in the financial services industry in 1993, serving in several protection specialist roles since joining Strategic Financial Partners in 1999. 







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