Saving & Budgeting

How do health savings accounts work?

Almost everyone will have healthcare costs at some point—a little preparation can prevent those costs from crippling your finances.

Set up a health savings account

A Health Savings Account (HSA) makes for an easy way to save and pay for qualified medical expenses like medical care, dental work and braces, vision, and prescriptions. Though it’s often confused with a Flexible Savings Account (FSA), a Health Savings Account is not the same. For one thing, the funds roll from year to year and will move with you if you change jobs, become unemployed or change your coverage.

An HSA can assist with high deductible health care plans, be used for dental work and braces, vision, and prescriptions. It’s a great plan for everyone, especially anyone on a fixed income or individuals with a high deductible health insurance plan. 


How do HSAs work?

When you open an HSA, you accumulate money—tax-free—to pay current and future health care expenses for yourself and your family. It comes with a triple tax benefit: contributions can be deducted pretax from your paycheck, lowering your taxable income; any interest or investment gains on the money is tax free; and withdrawals from the account are tax free, as long you spend the money on eligible items.

Pre-tax contributions can be made by you, your employer or both, up to an annual contribution limit. As you incur medical and health-related expenses, like insurance copays and prescriptions or long-term care services, the funds in your HSA can be used to cover those costs. 


What kinds of services count as eligible?

There's far too many covered items and services to list fully, but below are some commonly included items. 

A complete list of qualifying expenses is available at (Publication 969)

Medical Dental Vision
  • Ambulance services
  • Annual physical examination
  • Childbirth/delivery
  • Chiropractic therapy
  • Flu shots
  • Nursing homes
  • Operations/surgery
  • Cleanings and exams
  • Crowns and bridges
  • Dental surgery
  • Dental x-rays
  • Dentures
  • Fillings
  • Root canals
  • Contact lenses and lens solutions
  • Diagnostic services
  • Eye exams
  • Eye surgery
  • Laser eye surgery/LASIK
  • Prescription eyeglasses


Other benefits of HSAs

Even if you do not expect to have medical expenses during the coming year, consider an HSA if you’re eligible. From the moment you open it, even if your balance is zero, any medical expense you incur will qualify for tax-free reimbursement when the expense happens. For example, you have nothing in your HSA but you unexpectedly have to go to a doctor and end up with a bill for $75. Simply add the funds to your HSA and reimburse yourself so you can get the tax break on that bill.


Supplement retirement savings

Having an HSA in place now is a great (if unconventional) way to save for expenses that may happen during your retirement, when you are likely to have higher medical costs and less income to pay for them. One of the great benefits of HSAs is that the funds carry forward from year to year and can always be used to pay for qualified health care expenses tax-free.

Your Health Savings Account earns dividends on balances of $50 and over, so you may consider contributing the maximum amount for 2019: $3,450 for Single coverage and $6,900 for Family coverage. In addition, members between the ages of 55 and 65 can make a catch-up contribution of $1,000. There’s no deadline for spending the money in an HSA; the balance simply rolls over year to year and continues to grow tax deferred.

Find out if a health savings account is right for you

You can open one yourself by visiting any branch or contacting the Member Service Center at 800-525-9094.

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