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Managers often field questions from their employees about the various benefits available to them. One of the benefits that employees have the most questions about is the health savings account, also known as an HSA. Here are answers to some of the most common health savings account questions.
What is a health savings account?
Created in 2003 to help make healthcare more affordable, a health savings account, or HSA, is a special savings account that allows you to save pre-tax dollars for medical expenses. Income deposited into a health savings account will not be taxed unless used for non-medical expenses.
Am I eligible for a health savings account?
The law authorizing health savings accounts requires that HSAs be paired with a high-deductible health insurance plan. If you have a high-deductible plan, you are most likely eligible for an HSA.
What’s the difference between a health savings account and a flexible spending account?
The major difference between a health savings account and a flexible spending account is that with a health savings account, the funds remain yours for life. Any unused funds remaining in a flexible spending account at the end of the year must be forfeited.
What is the benefit of using a health savings account?
All funds deposited into a health savings account are pre-tax. This means you don’t have to pay taxes on income used for legitimate medical expenses. If you are in the 28% tax bracket, that’s like getting a 28% discount on all your medical expenses.
How much money should I put into a health savings account?
How much you deposit into your health savings account can be tricky. Some medical expenses are unpredictable, while others can be forecasted months or years in advance. If you have predictable medical expenses, such as prescription medications or periodic visits to your doctor, include those in the calculation. Otherwise, a safe option would be to maintain an amount equal to your health insurance deductible.
What expenses do health savings accounts cover?
Generally, health savings accounts cover all expenses related to the prevention, diagnosis, and treatment of a medical condition. The U.S. treasury, which manages the health savings account program, has opted not to develop a complete list of covered services because of the all the nuances involved. Instead, they leave the determination up to the account owner and provide the following guidance: “To be an expense for medical care, the expense has to be primarily for the prevention or alleviation of a physical or mental defect or illness.”
Some examples of expenses that may be covered are prescription medications, hospital care, medical office visits, and even mileage for travel to and from medical appointments.
How long do I have to spend the money in my health savings account?
There is no time limit on the funds deposited into a health savings account. Funds left over in the account at the end of the year roll over to the next year and remain available for the account owner to use as needed.
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