PPOs, HDHPs, FSAs, HSAs – the alphabet soup of health benefits is a bit much. However, the Health Savings Account (aka, HSA) is one acronym definitely worth looking into – especially if you’re enrolled in a High Deductible Health Plan.
So, what is an HSA?
As you may guess from the name, a Health Savings Account is a savings account for your healthcare expenses. But it’s no ordinary savings account. As a tax-advantaged savings account, the money you and your employer deposit into the account are done on a pre-tax basis. The money saved in your account can then be spent on eligible medical expenses.
Here’s why it’s so great:
The more you and your employer conribute to your HSA, the more money you save. And, you can contribute as many pre-tax dollars as you want up to the annual IRS limit, which for 2021 is:
- $3,600 for individuals
- $7,200 for families
When you think about it, if you’re not contributing the full annual contribution, you’re essentially leaving your tax-free dollars on the table.
Unlike other spending accounts, like the Flexible Spending Account (aka, FSA), there are no limits to how much money can be rolled over, year after year. In fact, you can choose to invest your money for potential growth. It’s a great way to save for eligible healthcare expenses into retirement. Plus, the money in your account is always yours. If you choose to change jobs, insurance carriers, or retire, you will still own the account and the money in it.
This is how it works:
1. If you’re enrolled in a High Deductible Health Plan (aka, an HDHP), you’re automatically eligible to sign up for an HSA.
2. Once enrolled in an HSA, you choose the amount you want to contribute to the account. This amount can be changed at any time, but the money will always be contributed on a pre-tax basis.
3. The money can then be spent on qualified medical expenses. These can include things like paying your medical deductible, copays, prescription drugs, prescription eyewear, etc.
There are some rules to keep in mind.
First, you are only eligible to enroll in an HSA if you’re also enrolled in an HDHP. You are also not allowed to pair and HSA with a healthcare FSA. However, a Limited Purpose FSA can be paired with an HSA.
You’re also not allowed to borrow money against the funds in your HSA. You can withdraw money from your HSA for any purpose, but it could include a tax penalty if the money is used for an ineligible expense (medical or non-medical). This means you’ll have to pay the income tax on the amount and a 20% penalty if you are not disabled or over the age of 65.
Keep in mind, if you’re currently a League member you can chat with a League Customer Care Representative directly in your League app if you have any questions about your eligibility status or eligible expenses. If you can’t remember what coverage you’re enrolled in, no worries. You can also easily confirm in your digital wallet.