Effective use of HSA Accounts
HSA Accounts are one of the best kept secrets that could really help your patients leverage a provision in the tax code to save money on your services. Use the content below to educate your patients about this helpful money-saving provision. Read on to learn more.
There is a less than well known provision in the tax code called an HSA Account, not to be confused with the well-known but significantly less useful FSA Accounts. Since Health Savings Accounts (HSAs) were established in 2003 as part of the Medicare Prescription Drug, Improvement and Modernization Act, they have become an increasingly popular option for consumers and employers seeking to manage their healthcare costs. HSAs combine high-deductible health insurance plans with tax-favored savings accounts. With a High-Deductible Health Plan (HDHP), you generally pay less each month in premiums, and the money in the savings account is then used to help pay healthcare costs before the deductible is met. Now, here is the key point and this is huge — Contributions to the HSA are tax deductible, and withdrawals are tax-free when used to pay for qualified medical expenses, including dental and vision – expenditures many traditional health insurance plans may not cover.
Here are the key rules and properties of HSA Accounts:
- Contributions are tax deductible in the year you contribute – regardless of whether you spend the funds in that year or not
- Withdrawals to pay qualified medical expenses (almost any) are without penalty
- Funds may accumulate in the account and are never lost (unlike FSA accounts where funds expire annually)
- To have an HSA Account, you must have a high-deductible health care plan that meets the requires of the Act that created HSA accounts. This can be employer sponsored, purchased from health.gov or any other plan the meets the requirements.
- Qualified health care plans must have a minimum deductible of $2700 (family) and a maximum out of pocket not to exceed $13,500. The plan must meet the Minimum Essential Coverage requirements set forth in the Affordable Care Act (ACA). Note: Most plans meet this requirement.
Given all of this, how do HSA accounts help you to get the care you deserve without breaking the bank? Here is your action plan for your next open enrollment period.
- Explore plan choices and choose a high-deductible plan that meets the Minimum Essential Coverage (MEC) requirement. Note, this will save you money when compared to a lower deductible plan.
- Take the savings in insurance and put this into an HSA account, preferably one sponsored by your employer but if not, then you can get one at banks that offer plans. For example, https://tinyurl.com/y2mmhd2j
- Now, if you can afford it, add additional funds to your HSA account up to the maximum allowed that year. For 2019, a family can save $7000, $8000 if over 55 years old.
- Now, throughout the year, use the HSA card directly with your provider or you can also reimburse yourself from your HSA if you use other payment methods. Hint: for easier recordkeeping, just use the HSA credit card for medical expenses that the HSA administrator/bank provides.
If you follow that approach, your out of pocket health care expenses are all being paid with pre-tax dollars. If you think that doesn’t make difference, consider this example:
Assumptions: Family taxable income of $160,000
From federal tax tables, marginal tax rate is 28% (tax on next dollar earned or savings on next dollar that is deducted)
Family lives in the state of Virginia, so the state tax rate is 6% making total marginal tax rate = 34%
With these assumptions, let’s examine the impact of our 8,000 HSA contribution. With marginal tax rate of 34%, the $8000 deduction saves $2720 in taxes. This is real money. If the family spent all $8000 of the contribution on health care expenses, the actual cost of the health care expenses in real “after-tax” dollars is $5280.
In this way, using the HSA account reduced the family spend to get great care that will pay dividends later in life with better health by $2720. The best part is that if they didn’t spend it all, 100% of the funds carry over and are available the next year, but they still got the tax savings in the year deducted. This is truly a win-win for the family.
The funds in an HSA account can also be used to pay for co-pays for medications, dental and vision care, nutraceuticals if prescribed by a physician, ambulance bills in the event of an emergency and non-medical therapeutic charges such as physical therapy, assistive devices (i.e. hearing aids), acupuncture treatments and numerous other medically related expenses.
Have a small business where you can “control” the benefits, then select a high-deductible plan then have the company contribute to the plan on your behalf and you are on the way to saving money and being able to get the kind of health care you deserve. You deserve better than 10-minute visits focused on disease management and harmful prescriptions. You owe it to your body to get the best integrative and functional medicine care possible and why not save money at the same time.