What Are Health Savings Accounts?

January 24, 2017 — finances, health savings account, HSA, Medicare, taxes

HSA

I have had a health savings account at my bank for many years. It is a simple savings account earning little interest. My accountant advised me to contribute to it, and I did without understanding the full reason. Now that I am on Medicare, in a relatively safe position, I am extremely happy I have a hefty HSA. I can use it for any approved medical expense that is not covered by my insurance. To qualify in the first place I had to carry a high deductible health insurance policy. This virtually guaranteed all the expenses would be paid by me, since I never hit my deductible amount in a single year. Now that I am on Medicare I can’t contribute any more, but that is fine also. I believe I have just the right amount for my own situation. I was not taxed on the initial deposit and the expenditures always qualify as legitimate medical expenses on my taxes.  I get to essentially write it off twice, even though it earns little interest.

There are  few caveats, such as making sure the use you make of it is an approved expense under the law. I made a costly error couple of years ago by paying for some body work from that account that did not qualify.  I paid an IRS penalty larger than the original payment, just to make sure I am in compliance with the law.  Now I will never cross that line again, as I know the consequences.  I did get a written prescription from a doctor for lymphatic drainage treatments, shiatsu, and reflexology at the U of A Supportive Care for Healing at the hospital.  Without the written orders those treatments would not be allowed, but with doctor’s orders it is fine. The same is true of over the counter medicines or vitamin supplements. Make sure you have the doctor’s orders filed with your tax documents, just in case you need them. My plan and my HSA account is personal, so there is no other entity for me to satisfy other then the IRS and the bank where the account resides.

There are plans in which employers contribute to HSA as an alternative or supplement to insurance. The law creating HSA’s was signed by George Bush on Jan 1, 2004.  Previous to that time a similar medical savings accounts existed for employees of small businesses.  The present law is open to employers of all sizes, not just those with fewer than 50 employees. Now the HSA is being promoted as an alternative to health insurance.  I am very pleased I have one, but it is no way an alternative for insurance. It is effective to the extent that it meets the individual’s needs.  It can be spent on preventive care not covered by most policies, so it can upgrade the health care of the customer.  It can be invested in a more lucrative way than my own interest earning savings plan at a bank.  I have a debit card I use for all medical payments during the year.  The feature I like the best is the full accounting of all the money I have spent on health care during a given year.  The HSA  bank statement is all I need to do my taxes at the end of the year and keep track of my health care spending.  I am glad to have it, if for no other reason than ease of tax accounting.

Do you have a health savings account, gentle reader?  Is yours done through an employer or is it a personal plan?  I think it is a good idea, but there is much to know to choose the right one and deposit the right amount for your future needs.

IRS