Edited from “Health Savings Accounts for Dummies” by Amy O’Meara Chambers, Priority Health

An HSA, Health Savings Account, helps you do what you know you should do – save money – plus, an HSA also allows you to invest it and spend it tax-free! One catch is that you have to spend the money on qualified medical expenses, which isn’t much of a catch when you consider the long list of qualified expenses and your family’s total healthcare expenses. Face it, you’re going to spend the money anyway, why not spend money you can earn some return on – tax-free!

Explaining HSAs

Basically, an HSA is a tax-free investment account whose proceeds are earmarked exclusively for medical expenses. You (or your employer) put pre-tax dollars into an investment account that grows your money tax-free, then you spend that money on qualified healthcare costs (determined by the IRS) without paying tax on it – it’s a tax-free triple treat!

Designed by the U.S. government, HSAs help you, the consumer, play a more informed and active role in controlling your family’s healthcare costs. Go to the IRS’s website www.irs.gov to access IRS Pub 502, which lists allowable medical expenses, most of which are qualified medical expenses for HSA purposes as well.

In other healthcare savings vehicles such as Flexible Spending Accounts (FSAs), if you don’t use the money in the account by the end of the benefit year, you lose it – it goes to the employer. Not so with an HSA. The money you accumulate in an HSA is yours as long as you live.

How to Know You’re Are Eligible for An HSA

To be eligible to establish an HSA account you must participate in an HSA-compatible high-deductible health plan (HDHP). The medical plan you select MUST say it’s an HSA plan or HDHP, High Deductible Health Plan. If not, ask!

HDHP’s generally have lower premiums than traditional health plans. IF you’re covered by an HDHP and no other non-HDHP plans, aren’t enrolled in Medicare, and aren’t claimed as a dependent on someone else’s tax return, you’re on your way to being an eligible individual for an HSA.

If your coverage changes to anything other than an HDHP plan, the deal is off. The HSA is still yours and you can continue to take distributions from it, but you can’t make any new contributions to the HSA – that is until you meet the eligibility requirements again.

For more information on HSAs, contact a licensed health insurance professional to assist in selecting the right HSA-compatible medical plan for you or your company.