As a foreigner living in the U.S., I have no idea what is this and it’s benefits. Would it help me pay less on my health insurance?
Thanks in advance!
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HSA accounts of a feature of high deductible health insurance plans: in exchange for potentially higher out of pocket costs (especially if you don’t end up having a lot of expenses that year) you’re given a plan with a lower premium and also access to an HSA account which is entirely income tax free as long as it’s either used only for health expenses or saved for retirement.
No, it does not help you pay less on health insurance… it’s an account you can use for medical expenses not covered by insurance (bills you pay before you hit your deductible, co-pays, prescriptions, even over the counter medications) and pay for them with pre-tax dollars. So if you set aside $2000 into an HSA, then that’s $2000 you don’t pay income taxes on, saving you something like $450 or so in taxes (depending on tax bracket). But the money can only be spent on those qualified medical related expenses.
HSA’s can roll over year to year, and you can even invest the money if there is over a certain amount in there (similar to a 401k).
FSA’s are available on different types of health insurance plans and are somewhat similar, but cannot roll over so you need to use up whatever money was set aside that year into the FSA.
It’s a tax-free savings account that can only be used for qualified health expenses.
The benefit is that your employer can auto-deposit a portion of your paycheck *before taxes* into that account to use toward medical expenses until you’ve hit your deductible or out of pocket max for the year (or for things that aren’t covered by insurance). So even though it’s income, it doesn’t count towards your income for tax purposes. And it helps you make sure you have funds on hand for out-of-pocket healthcare expenditures.
And in the US, there are a LOT of out of pocket healthcare expenditures.
In the US you can deduct medical expenses from your income so that money isn’t taxed. But this is a lot of paperwork and such, so we only allow you to do that when you have a lot of medical expenses that exceed a certain percentage of your income.
But now we have HSA! A portion of your income is paid into a bank account, and that money isn’t counted towards your taxable income. An HSA can reduce your taxable income by up to $3,650 if you’re single and $7,300 if you have a family covered under insurance. You don’t really pay less on insurance per se, but this sets aside money to pay for your deductible, which means you maybe get insurance that costs less.
What do you do with it? You use it for all medical expenses including glasses and dental. It can still help if you are normally very healthy and almost never spend money at the doctor. You can also buy much of the stuff in the health section of a market with it. Your insurer will have a list of what is allowed. Also, if you shop in that section, just scan the HSA first and it will automatically pay for any eligible items, then scan your regular card. You can even use it to buy exercise equipment if it’s ordered by a doctor for weight loss for a specific ailment, like high blood pressure or diabetes.
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