A health savings account is a great way to set aside money to pay for medical expenses throughout the year. But how do they work exactly? Here's a breakdown of health savings accounts - HSA explained for dummies!
-------- 🎬 NOTES FROM VIDEO A health savings account is a savings account where you can set money aside on a pre-tax basis to pay for qualified medical expenses.
A health savings account typically comes with a HDHP - high deductible health plan. So your deductible is going to be higher and your premiums will be lower. Most plans will cover 100% of your costs after you hit your deductible - but the deductible is high.
An HSA is not a substitute for health insurance but it comes with it in an HDHP.
Benefits of a health savings account https://www.cnbc.com/2019/06/03/these-are-the-new-hsa-limits-for-2020.html Set aside money pre-taxed for medical expenses. So just like a 401k, you contribute money from your paycheck pre-tax which reduces your taxable income for the year. Earnings in an HSA grow tax free. Contributions and interest accrues tax free. You can withdraw money tax-free when it's used for qualified medical expenses. You can take the HSA with you if you leave your employer The money does not "expire" like a flexible spending account. It keeps accumulating and you can still use it years later, even when you retire.
Cons Might not be right for someone who has a chronic illness or requires expensive medications - the deductible is high therefore you're paying more out of pocket The contribution limits are capped Depending on your plan, you might still have a copay after you reach your deductible limit.
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Hey guys, it's Justine with Debt-Free Millennials, the channel to help you crush your debt and live
payment-free. Today we're going to be covering HSAs and what they are. I'm going to be covering
benefits and some of the cons, so let's just go ahead and jump right into it. An HSA, or a health
savings account, is a separate savings account where you can contribute pre-tax dollars for
qualified medical expenses. A health savings account typically comes with a high deductible
health plan, or an HDHP. So it's not a substitute for health insurance, it actually goes with your
health insurance plan. So check with your employer-sponsored health plans and go through the
options. You'll see a insurance plan, if it's available to you, called HDHP, and it comes with
an HSA, which is that health savings account. So when you're in a high deductible health plan, that
means that your deductible and the amount of money that you're going to be spending on medical
expenses is going to be higher than some of these other insurance plans. And the health savings
account is built in to help you pay for those qualified medical expenses. So because you have
such a high deductible with these types of plans, oftentimes your premiums are going to be a lot
lower, which is really helpful. So you have a smaller premium that you pay every single month
in exchange for a higher deductible when you do pay for medical expenses. So once you hit that
deductible, anything outside of that, typically these insurance plans are going to cover 100%
of the cost. Sometimes there may be a small copay, so you want to make sure what kind of health plan
you have and how that factors into once you hit your deductible. Now for 2020, an individual
deductible has at least $1,400 or $2,800 for a family, but the total out-of-pocket expenses,
including the deductibles, copays, and coinsurance, isn't more than $6,900 for an individual or $13,800
for a family. So a health savings account is great for a ton of reasons, and one of the benefits
really is that you get to contribute to this type of account with pre-tax dollars. So much like you
would contribute with your 401k inside of your paycheck, you would set aside a certain amount
towards your HSA, and that money gets automatically pulled from your paycheck and then goes into your
HSA account. It's really simple and it makes savings really great, and a lot of the times
your employer may also set up a matching contribution into that HSA account for you.
Plus, any earnings inside of an HSA grows tax-free. That includes your contributions and the interest
that you earn inside of that account. And yes, the HSAs are interest-bearing accounts, so this makes
it a really good investment for your health. Plus, you can withdraw the money tax-free when
you pay for qualified medical expenses, but oftentimes these HSA accounts come with a debit
card so that you can just use that debit card when you're paying for the qualified medical expenses.
Speaking of which, there are a ton of qualifying medical expenses that are eligible when it comes
to an HSA. Now, I personally use Payflex, and they are really good at outlining what are qualified
medical expenses and what aren't, so make sure you understand that. I've used my HSA card to pay for
things like contacts, contact solution, prescription drugs. You can also use your HSA for things like
birth control, condoms. You can use them for condoms. There are a ton of qualifying medical
expenses, including Tylenol, allergy medicine, Pepto-Bismol, pain relievers, blood pressure
medicine, breastfeeding supplies. All of these things are covered as a medical expense, which
you can use your HSA for. Another great thing that I like about HSAs is that when you have a medical
expense pop up and you have to pay for that, it's not like it's coming out of your direct budget.
You have a separate savings account specifically for medical expenses, so it doesn't disrupt your
ordinary budget. Another really great thing about an HSA is that if you were to ever switch jobs or
leave your employer, your HSA stays with you. Even if you still have money left over in that account,
you can still use it for qualifying medical expenses. HSAs are really great in that way
because the money doesn't expire like a flexible spending account does. With a flexible spending
account, you set a specific amount of money for that year to use for your medical expenses, and
then if you don't use it, you lose it and that's the end of it at the end of the year. HSA does
not operate that way. That money rolls over continuously year after year, and if you were
to leave your job, you get to take the money with you. Now, while I think an HSA is awesome in helping
you pay for medical expenses, there are a couple of things that you should understand before you
sign up for one. One, if you have a chronic illness or you require a lot of expensive prescriptions
where you go to the doctor a lot, an HSA and a high deductible health plan may not be right for
you simply because you're going to be paying more towards your deductible and it's going to be a
higher deductible, so therefore you're going to have to be dumping in way more money into that
health savings account and the cost benefits just may not be there for you. And I did mention this
before, depending on your plan, you may still have a copay even after you reach that deductible,
but more often than not, your plan will pay 100% of your services after you reach that deductible.
Also, you'll want to check the contributions into an HSA for the year are capped and limited,
so it's not like you can endlessly supply thousands and thousands of dollars into an HSA account.
There are limitations. For 2020, an individual contribution amount is $3,550, and for next year
in 2021, you'll be allowed to contribute up to $3,600 on an individual plan. And for families,
even if it's just you and your spouse on that health plan, you can contribute up to $7,100
in 2020 towards your HSA, or for 2021, you'll be able to contribute up to $7,200. So Kyle and I
have maxed out his health savings account, which I'm on his health insurance plan, and it has helped
us so much. Just to cover doctor's visits, I've done a cavity filling with it. I had, when I got
stung by a stingray, I used it to pay for my visit at the urgent care clinic. It's been so helpful
for us, especially because we know we have that separate savings account set aside specifically
for medical expenses. So let me know in the comments below if you have an HSA or if this
video was helpful for you in deciding whether or not to switch over to a high-deductible health
plan with an HSA account. I think they are great resources that you can use all throughout your
life, and yes, even when you retire. So if you like this video, make sure to give it a thumbs up,
and for more information on how to live a debt-free life, be sure to subscribe to the channel.
