Ever since the House of Representatives passed the new health bill, the topic of a health savings account has come up. Given how chaotic the healthcare system was before the bill, we have seen an emergence of health savings accounts, also known as HSAs. We think they will continue to get bigger and grow in popularity should the new bill becomes the law of the land. The changes to HSAs further push for patients to take more ownership over their health care. To give you a better understanding with a bookkeeper’s tips and thoughts on this interesting new phenomenon, read our 4 must read HSA tips.
1. What is an HSA?
The concept of a health savings account was put in to law by President Bush (43) in 2003. An HSA is an account that patients put money into to save for future medical expenses. This includes for both healthy and ill patients alike, as well as young and old. Contributions to the HSA can be made by you, your employer, or both. The patient can then access these funds should they ever need a medical procedure, surgery, medication, or any form of healthcare treatment. Because the HSA is literally the patient’s own money, it encourages them to shop around for the best deal. With the same procedure sometimes having different price ranges well into the thousands, it can be a benefit to patient and doctor.
2. Benefits of the HSA
A great thing about an HSA is how the patient is in 100% control of the money. In contrast, health insurance is a looming bureaucracy with many stops between you and your care. Any contributions made to your HSA are also tax deductible. The limit to which you can contribute continues to increase each year. Another great benefit to the HSA is how you can keep the assets once you are eligible for Medicare. Doing the math, a 20 year old who contributes $2,000 per year to their HSA will have at least $90,000 when they are 65.
3. Drawbacks of HSAs
There is also a downside to a health savings account. One of the biggest is the restriction of having any other medical insurance. Those who have accident, disability, vision, long term care, and others may be ineligible to establish an HSA. Those who are currently enrolled in Medicare – whether elderly or disabled – are also disqualified from having an HSA. If your parent can and does claim you as a dependent on their tax return, you may not have an HSA. But the biggest drawback to an HSA is that once the money runs out, there isn’t any more. Of course, the same can be said for how much an insurance company will pay for a certain procedure, medication, etc.
4. What’s New With HSAs
As of this year (2017), the maximum yearly amount an individual can contribute to their account is $6,550. This is far larger than the $3,400 limit it replaced. Families can contribute up to $13,100 to their HSA, also significantly up from the previous $6,750. And if you work for a mid to large sized company, there may already be an HSA in place that employers also contribute to. In fact, the HSA has been called the the best tax-free investment account you’ll be able to find.
Bookkeepers Tip: HSAs are considered have a triple benefit when it comes to taxes. This is because:
1. The money contributed into the account is tax deductible.
2. The money withdrawn is tax free
3. The money can grow for its entire life without incurring any taxes
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