How would you like to get better control over your health insurance costs? You should consider the new way to pay for medical expenses—a high deductible health plan (HDHP), which is sold with a health savings account (HSA). This is a great idea for self-employed individuals, employers with fewer than 10 employees, and individuals who are uninsured or don’t have access to group health insurance.

With an HDHP, you can open a tax-favored HSA, which operates like a medical individual retirement account. You own your HSA and control how and when to use the money in the account. A higher deductible means you may have lower premium payments. That savings can then be contributed to your interest-earning HSA. Annual contributions to the HSA are tax deductible and limited to the lesser of the HDHP deductible or $2,650 for an individual with self-only coverage or $5,250 for family coverage. These amounts are subject to cost-of-living adjustments each year and are prorated for the number of full months in which the individual was enrolled in an HDHP during a calendar year.

You can use the funds in your HSA to cover a broad range of qualified medical expenses as defined by IRS Code Section 213(d). A description of qualified medical expenses can be found in IRS Publication 502. Those include many expenses not typically covered by health insurance, such as prescription drugs, vision, dental and orthodontics, and long-term care insurance premiums.
Withdrawals can be used to pay for medical expenses for you, your spouse, or eligible dependents. These funds may not be used to pay for your high-deductible health plan or other health plan premiums.

As long as you use the money to pay for qualified medical expenses, you never pay taxes on it. Those dollars earn tax-free interest from the first dollar you deposit, and the unused HSA dollars roll over from year to year, tax free. Many insurance companies provide a link to an HSA provider to help set up the account at no charge. You then are provided with a debit card and convenience checks to make withdrawals from your account. Many times, you spend much more on your health insurance premium than you do on medical treatment. Why not save your money for a healthy day? TPW