Solving The Health Care Puzzle With A Health Savings Account
For many working Americans, health care costs are a nagging but necessary expense. In many cases, mounting health care costs are taking away much of the wage gains won by American workers. The average worker is shelling out $5,714 for a family health-insurance plan in 2017, 30 percent of the total $18,764 cost, according to an annual study from the Kaiser Family Foundation and the Health Research & Education Trust. Five years ago, workers shouldered $4,316 of the $15,745 cost, or 27 percent.
The rising costs of health care plans are forcing a number of employees to embrace so called high deductible health plans. A High Deductible Health Plan (HDHP) is a category of health insurance plans available from most health insurance providers. They have lower monthly premiums and a higher yearly deductible than regular health insurance plans. In general, HDHPs have some of the following characteristics:
- Can cost less than other health plans.
- Provides quality health insurance.
- One calendar-year deductible per family.
- Can pay 100% of covered expenses after deductible is met
The main downside of a HDHP is that in the event where your health costs rise above a set threshold, you will be required to pay the entire deductible amount, which can be significant. Thankfully, there is a little-known tax-advantageous option available that can help many Americans budget better for health emergencies called the Health Savings Account or HSA.
An HSA is a tax advantaged savings account for medical expenses. The IRS came up with the HSA for qualifying taxpayers to receive a tax benefit for medical expenses paid, whether you itemize or not.
You can open an HSA if you have a qualifying high deductible health plan. The HSA can be kept forever, whether you leave your job or change insurance plans. Contributions, earnings, and qualified withdrawals are all tax free. A qualified HDHP must have a minimum deductible, which is set each year by the IRS. This means that the plan can’t have a deductible that is less than the below figures. If the plan does, it is not a qualified plan for the HSA.
- Self-Only Coverage – $1,350
- Family Coverage – $2,700
2018 HSA Contribution Rules
The 2018 annual contribution limit that individuals with single medical coverage can contribute to an HSA is $3,450, an increase of $50 from 2017. The annual HSA contribution limit is $6,900 for those covered under qualifying family medical plans (up from $6,750 in 2017). But if you’re 55 or older in 2018, you can contribute an additional $1,000, or a total of $4,450 to an HSA for singles and $7,900 for families per year. You can contribute up to the tax filing deadline for the year. For most people, that is April 15 of the next year.