It’s no secret that navigating the health care process can be confusing, and part of that confusion stems from the common use of acronyms in the industry. HSAs, FSAs, EOBs, PPOs, HMOs, the list goes on. So let’s focus on HSAs. Exactly what are they and how do they work?
What is an HSA?
HSA stands for health savings account. It works like a 401(k) combined with a checking account that can help pay for qualified medical expenses like prescriptions. Sounds great right? It is, but there are some restrictions. You can only qualify for an HSA if you cannot be claimed as a dependent, are not enrolled in Medicare and are enrolled in a high-deductible health plan.
What is a high-deductible health plan?
A high-deductible health plan is one that has low monthly premiums, but high out-of-pocket costs that you have to pay before your insurance kicks in. For example, if you have a monthly premium of $200 and your deductible is $1,300, you would have to pay $1,300 before insurance starts to cover your health care costs. In 2015, someone who has a plan with a deductible of $1,300 as an individual, or $2,600 as a family, will fall into this category.
How does a health savings account (HSA) work?
HSAs are normally set up through your insurance provider, but there are options available to set one up through financial institutions. HSAs work like any other savings account. You allocate funds to be sent there straight from your paycheck, or you can put money directly into the account. Most HSAs come with a debit card so you can use it in the doctor’s office or at a pharmacy. Some HSAs work by reimbursing you for the amount you spent on a qualified medical expense.
How can HSAs help?
By having funds set aside for medical expenses, HSAs can help in many ways including:
- Paying down your out-of-pocket costs
- Paying for prescriptions
- Paying co-pays
- Paying for medical tests
There are many decisions involved in purchasing health insurance and one of those is deciding whether or not sign-up for an HSA. Keep in mind that HSAs are just one type savings account that can be used for medical expenses, so talk with your financial planner or insurance agent to make sure an HSA is right for you.
Want to learn more about HSAs? Check out these other blogs on the topic:
- Which Health Spending Account is Right For You?
- Health Savings Accounts Help Consumers Fill Gaps in Coverage
- Enrollment in Private Exchanges Can Increase Employee Enrollment in HSAs
Photo credit: Sami