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How to Save Money on Healthcare with an HSA

Money Girl explains who’s eligible to have a Health Savings Account (HSA), the rules for using one, and how they help you keep more money in your pocket - now, and in the future.

By
Laura Adams, MBA
Episode #391

What Is a High Deductible Health Plan (HDHP)?

I mentioned that you need a special type of health insurance in order to qualify for an HSA. It’s called a high deductible health plan (HDHP). A deductible is the amount you must pay for covered medical expenses before your benefits begin each year.

While you might think that it’s better to have a lower deductible and pay less out-of-pocket, having a higher deductible reduces your monthly insurance premiums. Deductibles and premiums have a seesaw relationship, because increasing one generally makes the other go down.

For 2015, a health insurance policy must have an annual deductible of at least $1,300, or $2,600 for family coverage, to be considered a HDHP. Additionally, there are maximum out-of-pocket expense limits; they can’t exceed $6,450, or $12,900 for a family plan.

Since healthcare plans have become more expensive, and are a legal requirement under the Affordable Care Act, known as Obamacare, more consumers are choosing high deductible plans to keep their premiums affordable. However, according to an insuranceQuotes.com survey, the majority of Americans aren’t taking advantage of an HSA because they don’t understand how they work.

The Obamacare plans available for private purchase fall into 4 major categories: bronze, silver, gold, and platinum. According to HealthPocket.com, the average deductible for a bronze plan is $5,181, for 2015. Silver plans, which are the most popular, have an average deductible of $2,927. So most people who purchased a bronze or silver health plan are eligible for an HSA.

More employers are offering HDHPs to help workers keep premiums as low as possible. So no matter if you bought a health policy on your own or through work, find out if it qualifies you for a HSA, so you can get all the medical savings possible!

More employers are offering HDHPs to help workers keep premiums as low as possible. So no matter if you bought a health policy on your own or through work, find out if it qualifies you for a HSA, so you can get all the medical savings possible!

See also: 3 Fitness Tax Breaks to Save You Money

How to Open Up a Health Savings Account (HSA)

If you qualify for an HSA, it’s easy to open one up at a bank such as Chase, Wells Fargo, or HSA Bank. Most are convenient to use and offer paper checks, a debit card, and online banking.

The IRS sets limits on the total amount you can contribute each year. For 2015, you can put up to $3,350 in an HSA, or up to $6,650 if you have a family plan. There’s also a “catch up” policy that allows you to contribute an extra $1,000 to either an individual or a family policy, if you’re age 55 or older.

You can make contributions at any time, even up to April 15 for the previous tax year. But you’re never required to make contributions to an HSA.

There’s a unique way to fund your HSA for the first time, using money you’ve already saved in your IRA. You can do a tax-free rollover from your IRA into an HSA once in your lifetime, up to the annual contribution limit. The trustee of your IRA simply transfers the funds to the trustee of your new HSA.

See also: 10 IRA Facts Everyone Should Know

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About the Author

Laura Adams, MBA

Laura Adams received an MBA from the University of Florida. She's an award-winning personal finance author, speaker, and consumer advocate who is a trusted and frequent source for the national media. Her book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show. 

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