Much like flexible spending accounts (FSAs) available under some employer health plans, HSAs, or health savings accounts, allow people to set aside funds to cover out-of-pocket expenses associated with medical care. The only real difference is that FSAs are better suited to insurance plans with high premiums and low deductibles, whereas HSAs are more advantageous for those with insurance policies that feature lower premiums and higher deductibles. In fact, you must have a qualifying, high-deductible policy in order to set up an HSA.
These tax-advantage medical savings accounts are beneficial in a couple of ways. First, the money you contribute to your HSA, while not pre-tax income, is tax deductible. This means you can write off contributions on your annual income tax return. In addition, the money you put in accumulates interest until it is used, and the interest is tax deferred, which means you won’t be taxed on it until you withdraw funds. Further, any funds used for qualifying medical expenses will be tax free, including any interest earned. This money can’t be used to pay health insurance premiums, but you can use it to pay for other out-of-pocket expenses like copays, coinsurance, and deductibles for medical, dental, and vision care.
It’s easy to see how this type of account could be useful, especially for individuals or families that have known medical expenses each year, or have major medical expenses on the horizon, say for a planned surgery. If you’ve already been using an HSA for some time, you are probably keen to keep it. However, you may wonder if you’ll lose it by enrolling in Obamacare. This will depend almost entirely on your deductible. Any time you switch insurance policies there is a chance you could end up with different premiums, deductibles, and other options. In fact, this may be the very reason you’ve decided to change policies – in order to get better coverage at a more affordable rate.
If you’ve recently lost coverage through your employer (due to job loss or changing jobs, for example) or you’ve been paying for private health insurance and you think you can get better rates through the health insurance marketplace, you simply need to look for plans that meet the criteria to qualify you for an HSA. For 2015 and 2016, qualifying plans will include a deductible of $1,300 or more for an individual plan or $2,600 or more for a family plan. What if you end up with an insurance policy that doesn’t meet these criteria, though?
You will not be allowed to continue making contributions to your existing HSA if your deductible amount drops below qualifying levels. The money you have accrued so far can be kept and used as needed, complete with the benefits particular to HSAs. But until such time as you do have a health insurance policy with a qualifying high deductible amount, you cannot contribute any more money to your existing HSA. The good news is that the benefits you receive with an HSA can be paired with cost assistance for silver plans, should you qualify for both. In other words, you can save on out-of-pocket medical expenses in a variety of ways when you obtain healthcare insurance through Obamacare, supposing you meet certain criteria.
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