Health Savings Accounts: Are You Eligible?

Health Savings Accounts (HSAs) are like personal savings accounts that can be used for health expenses. You own and control the money in your own account.

There are advantages to having an HSA. You are in control of the money and can make your own health care choices. You decide how much gets set aside. If your employer contributes to your account, you take that money with you when you leave that job. The money in the account rolls over to the next year. Any deposits into your HSA are untaxed. It also accrues interest that you can use for your health expenses. A flexible spending account (FSA) has a certain amount that you put in and must use within the year; HSAs don't have a deadline to use or lose.

There are also disadvantages. Illnesses are often unpredictable, so it’s tough to estimate how much money you will need in the account. Pricing for medical services isn’t always advertised. You may not seek medical care when you need it if your mind is on the figure in your HSA. If you use the money for non-medical expenses, you must pay taxes on what you use.

To have an HSA, you must have an insurance plan with a high deductible. Deductible ranges are set by the government each year for HSAs. You can have an HSA in 2016 if your deductible ranges from $2600 to $13,000 annually. If your insurance deductible is less than $2600, you cannot have an HSA. Affordable Care Act policies on the exchanges do not necessarily qualify you for an HSA. In some cases, the deductible for an ACA policy is too high. There are no Medicare HSAs.

If your insurance plan has a high deductible, the insurance covers everything once the deductible is reached. If you pay the maximum out-of-pocket from your HSA each year, you don't have to pay for co-pays or other medical expenses. You still pay your regular insurance premiums.

Most banks who have HSAs issue a debit card so you don't have to keep a shoe box of receipts. The debit card is only for medical expenses. If you use the debit card on a non-medical expense, you are charged interest on that expense plus a penalty by the IRS. Check the current laws to find out what medical expenses may qualify beyond deductibles and co-pays.

Health insurance expert and President of Government Relations for GTL, Marianne Eterno, joins host Melanie Cole to discuss what you need to know about health savings accounts.