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Health Savings Accounts Redux

HEALTH SAVINGS ACCOUNTS REDUX

By

Derek Carawan, AAMS

Most of us have either experienced the healthcare drama in this country directly or we know of someone who has. In two random surveys conducted by the Henry J. Kaiser Family Foundation from December 13th – 19th , 2016 and February 13th – 19th , 2017, the following data was collected:

  • The number of people that claim to have a difficult time affording their premium costs jumped from 27% in 2015 to 37% at the time of the survey. Similar increases were noted for difficulty in paying deductibles, copays and prescriptions.
  • Three in ten adults stated that within the last year, someone in their household found that paying their medical bills had become more challenging. Many reported that they had to cut back on household spending because of medical costs.
  • About 45% of Americans stated that an unexpected medical bill of $500 would place them in a difficult situation.

A simple internet search will result in similar findings which confirm what many of us already know. This problem is not going away and we must come up with ways to address its impact on our lives. One of the solutions that is getting more and more attention is the HSA (Health Savings Account). I wrote about this in an article in April of 2016. With the state of healthcare today, I thought it worth addressing again. For those of us who have a high deductible health plan (HDHP) and want to find a more efficient way to put away money specifically to cover medical expenses, this may be part of the answer. It certainly isn’t a solution for everyone though. Here are some of the details of an HSA:

  • It has three tax advantages.
    • Contributions are pre-tax (reducing your taxable income)
    • Interest and earnings are potentially tax-free
    • Withdrawals for qualified medical expenses are tax-free
  • You are issued a debit card that makes access to your account easy.
  • The account is yours and you can take it with you (if it is part of your employer sponsored benefits program).
  • The maximum allowed contribution for 2017 is $3,400 for and individual and $6,750 for a family. If the participant is over 55 years old then an additional catch up contribution of $1,000 is allowed.
  • The money in your HSA can be invested. But you must have a minimum balance of $1,000 to do that. Depending on the provider, there could be a group of mutual funds that you can invest in along with a fixed account. The money that you have in the HSA may earn interest.
  • There may be monthly fees for your HSA.
  • Unlike an FSA (Flexible Spending Account), HSA’s are not a use it or lose it proposition. Whatever you don’t use just rolls over to the next year doing away with that end of the year rush to spend your dollars before you lose them.
  • HSA funds can be used to pay for Medicare premiums.
  •  You cannot use the funds to pay for vison, medical or dental premiums.

For more about HSAs and Medicare visit MedicareInteractive.org. Here is a comment from their site regarding not being allowed to contribute to an HSA once you are enrolled in Medicare, “If you enroll in Medicare Part A and/or B, you can no longer contribute pre-tax dollars to your HSA. This is because to contribute pre-tax dollars to an HSA you cannot have any health insurance other than a HDHP. The month your Medicare begins, your account overseer should switch the contributing balance to your HSA to zero dollars per month. However, you may continue to withdraw money from your HSA after you enroll in Medicare to help pay for medical expenses, such as deductibles, premiums, copayments, and coinsurances. If you use the account for qualified medical expenses, it will continue to be tax-free.”

You are only allowed one rollover per year. Please consult with your plan and/or tax professional regarding other details of HSA plans.

Derek Carawan is a LPL Financial Advisor and LPL Registered Principal with Carawan Financial Partners, Inc. / Securities offered through LPL Financial/ Member FINRA/SIPC and may be reached at, www.carawanfp.com, 919-870-8181 or derek.carawan@lpl.com.

These views are those of the author and should not be construed as investment or tax advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. Investing in mutual funds involves risk, including possible loss of principal.

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