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Should You Open an HSA?

Jun 19, 2017 3:53:55 PM

Should you open an HSA?

Well first, let’s define it: HSA (Health Savings Account): A tax-free medical savings account available to taxpayers in the United States who are enrolled in a high-deductible health plan (HDHP).

So that necessitates another definition, right? What exactly is a HDHP? An HDHP is a health insurance plan with lower premiums and higher deductibles than a traditional health plan. Being covered by an HDHP is a requirement for having a health savings account.

Increasingly, employers are offering HDHPs as their health insurance benefit of choice. This means lower premiums for you, but higher deductibles. If you have an HDHP, you’re eligible for an HSA, so read on.  


HSAs are designed to help you plan for medical expenses foreseen and unforeseen. How does it work?

Just like a 401(k), an HSA draws a percentage from every paycheck. That percentage is taken from your paycheck pre-tax, and as long as you use that money for approved medical expenses (if you take these out for non-medical expenses before 65, they’ll be taxed, so watch out!), it will never be taxed. That means free money! From the government! Possibly for laser eye surgery?

But there’s more. Your employer may even match you to a certain percentage, and you’re always free to put more cash in your HSA, and that cash can come from any source. Your employer may also offer cash-matching benefits if you fulfill health goals, like a regular check-up, an active gym membership, and even weight loss. HSAs can really help you develop a more active relationship with your health.

How do you get at that sweet, sweet, health cash? Usually, your health insurance will send you a specific HSA debit card or checkbook, which you can use exactly like a credit card at the doctor’s office.

Be aware, though: the annual contribution limit to an HSA in 2016 is $3,400 for an individual and $6,750 for a family.

So who should spring for an HSA? If you have an HDHP, almost everyone. You will want to be wary, however, if you have continued high-cost medical expenses, since those high deductibles will sting you in the first few months of the year. If you have a HDHP, you could always gamble on the chance that you won’t break your right arm in a gnarly skateboarding incident, but it’s generally wiser to take advantage of an HSA.

Open enrollment for HSAs generally occurs from mid-November to mid-December, so you have some time to research and decide if an HSA is right for you.

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