A Health Savings Account (HSA) is a tax-advantaged account that can be used to pay for qualified medical expenses. Contributions to an HSA are made with pretax dollars, and withdrawals from the account are tax-free as long as they are used to pay for qualified medical expenses.
High-deductible health plans are eligible for an HSA because they help consumers save money on out-of-pocket medical costs. Employer-sponsored retirement plans allow participants to deduct their contributions from federal, state, and payroll taxes. It is possible to make after-tax contributions to a retirement account outside of a workplace plan and deduct those payments from your taxable income the following year.
An HSA can be used to pay for a wide range of medical expenses, including doctor visits, prescription drugs, and dental and vision care. You may normally include medical costs you pay for yourself as well as those you spend for a spouse or dependant, regardless of whether the services were rendered or paid for. Different criteria apply to decedents and persons who are subject to various support arrangements.
HSAs are available to anyone with a high-deductible health plan (HDHP). HDHPs are health plans with lower monthly premiums and higher deductibles than traditional health plans. In order to be eligible for an HSA, you must be enrolled in an HDHP. HSAs are a great way to save for qualified medical expenses, and they can be a valuable tool in managing your overall health care costs.
10 ways to make HSAs Awesome.
Usage of health savings accounts, or HSAs, has exploded over the last five years as has the amount of tax money saved by account holders. But changes are needed to increase access, remove complexities, and encourage healthy behaviors. Below are my 10 ways to make HSAs Awesome.
1. Rename high deductible health plans to HSA eligible health plans
What’s in a name? Well, in the case, alot. High deductible health plan, or HDHP, is a piece of industry jargon that does not connect well with people. Nothing about it helps connect it with an HSA. With just a simple name change, the connection is easily made. Who doesn’t like easy?
The best way to rename high deductible health plans to HSA eligible health plans will vary depending on the size and structure of your organization. However, some tips on how to proceed with this process may include:
- Work with your human resources or benefits department to identify all high deductible health plans that are currently offered by your organization.
- Determine which of these plans meet the eligibility requirements to be renamed as an HSA eligible health plan.
- Work with your benefits provider or third-party administrator to make any necessary changes to the plan design or benefits package.
- Communicate the changes to your employees, and provide information on how they can enroll in the new HSA eligible health plan.
2. Allow seniors to continue making HSA contributions.
According to the prominent healthcare research organisation Kaiser Family Foundation, around 55 million Americans are eligible for Medicare coverage. This big group is currently prohibited from contributing to HSAs. This modification alone might increase or even quadruple HSA participation!
3. Permit current and former military personnel to make HSA contributions
Nearly 10 million individuals are insured by TriCare, the health insurance plan of the United States military. Who would oppose extending the wonderful tax-free advantages of an HSA to those who have or are now serving our country? Not me!
4. Allow Medicaid recipients to have an HSA
According to Kaiser Family Foundation, almost 72 million Americans qualify for Medicare coverage. State and Federal government groups could use HSA accounts as a form of health opportunity accounts to encourage health awareness and healthy behaviors.
5. Allow couples to make catch-up contributions to a single HSA
Today, couples who both qualify for catch-up contributions at age 55 must maintain separate HSA accounts in order to make that contribution. This is an onerous requirement – who wants to keep two accounts when one will suffice? Also, if one spouse/partner has access to an employer based HSA with very low fees and great investment options, of course both spouses want all of their contributions to go into that great HSA.
6. Add over-the-counter drugs to the list of allowable expenses.
A few years ago, several over-the-counter (OTC) drugs were removed from the list of acceptable expenses. It was a money grab by the government and has also caused much confusion for HSA users, who must assess what is or is not on a highly complicated list of qualified expenses while in the pharmacy aisle. Typically, confusion leads to poor adoption, thus eliminating this barrier will be a significant benefit for HSA members.
7. Allow use of an HSA to pay for health insurance premiums
Individuals without employer-provided health insurance often pay their plan premiums using after-tax dollars. Allowing premium payments from an HSA might save these folks a substantial amount of money and serve as a simple introduction to all the other ways they could save by utilising their HSA.
8. Provide HSAs with the same protection against bankruptcy as other retirement funds
Beneficial news for anybody with a significant HSA account in the face of something as financially painful as bankruptcy. Let’s just refer to it as additional protection in case life gives us something far worse than lemons.
9. Simply rules for rolling FSA/HRA dollars into an HSA
While rules exist allowing rollover of FSA/HRA dollars into an HSA today, those rules are so confusing and complex that many people and even HR professionals avoid the hassle. Simplifying the rules, will encourage conversions to HSAs and potentially give new HSA members a solid cushion during the early years after moving to a high deductible plan.
10. Add exercise equipment, fitness programs, and nutritional supplements to the eligible expense list.
A major evolution for HSAs is to allow and even promote healthy lifestyles – the types of activities that reduce the need for medical spending later in life. These additions would be a HUGE shot in the arm for HSAs and a kick in the booty for HSA members. Get out there and get active – all tax free!
What is the limit for 2022 for an HSA?
Consumers may donate up to the IRS-determined yearly maximum amount. In 2022, the maximum contribution levels are $3,650 for individuals and $7,300 for families. The yearly “catch-up” payment level for those 55 and older will remain $1,000. Only a limited purpose FSA may be given alongside the HSA without affecting a member’s contribution eligibility to the HSA.
If their FSA balance is $0 at the end of the prior year, consumers with an FSA for any reason may contribute to an HSA. Health savings accounts (HSAs) enable you to put away pretax funds for certain medical costs, such as menstrual supplies and blood pressure monitors. The maximum employer contribution for excepted benefit health reimbursement arrangements (excepted benefit HRAs) for plan years starting in 2022 will continue at $1,800, according to IRS Revenue Procedure 2021-25.
What happens if I contribute too much to my HSA?
Contributions to an HSA that exceed the IRS annual contribution limitations ($3,600 for individual coverage and $7,200 for family coverage in 2021) are normally not tax deductible and subject to a 6% excise tax.
If you contribute too much to your HSA during the year, you have two options:
- Before filing your federal income tax return, you must deduct excess contributions and the net income due to excess contributions (including extensions). You will be taxed on the extra amount withdrawn from your HSA.
- Leave your excess contributions in your HSA and pay a 6% excise tax on them.
If you made the excess contribution via pre-tax payroll deduction, you must work with your employer to verify that your Form W-2, which your company must provide to you by January 31 in order to file your individual income tax return, appropriately represents your contributions.
Are vitamins HSA eligible 2022?
According to the Internal Revenue Service, you cannot use your HSA to purchase vitamins or supplements for general health. However, you may use your HSA to pay for vitamins and supplements prescribed by a doctor to treat or prevent a particular ailment.
If you use nutritional supplements for general health reasons, you cannot use your HSA to pay for them. However, if your healthcare practitioner suggests that you take a supplement to treat or avoid a particular health problem, the expenditure would be deemed eligible.
Wouldn’t it be great if all 10 of these ideas were to become reality? HSA eligibility could really surge, account usage could be easier than every before, and there would be even more incentive to improve our health through preventative activities. Win – Win – Win.
So what would it take to see all of these ideas made into law? How about passage of The Health Savings Act as written by United States Senator Orrin Hatch and Congressman Erik Paulsen.
That’s right! All 10 of these ways to make HSAs awesome are part of this proposed legislation. I hope that you can see how easy it is to get behind this bill and I hope that you will join me in supporting it and asking your elected officials to support it as well.