Health Insurance

What Is An Unrestricted HSA Card

By David Krug David Krug is the CEO & President of Bankovia. He's a lifelong expat who has lived in the Philippines, Mexico, Thailand, and Colombia. When he's not reading about cryptocurrencies, he's researching the latest personal finance software. 5 minute read

In spite of salary and price increases, health care expenditures keep rising at a far quicker rate. According to the Kaiser Family Foundation, by 2021, the average health insurance premium for families with employer-sponsored health insurance had skyrocketed to a staggering $22,221.

That number should send shivers down the spines of parents and children who don’t have access to health insurance through their employers.

Many American families are finding that the ever-increasing cost of health insurance premiums is forcing them to switch to high-deductible health plans, which have lower monthly payments. And Congress did them a solid by introducing the HSA, or health savings account.

What Is an HSA (Health Savings Account)?

HSAs are like a traditional IRA in that they allow you to save money tax-free for future medical costs.

To offset the cost of ever-increasing deductibles, Congress created a tax-free way to save money for medical expenses called a health savings account. You can use your HSA until you hit your deductible, at which point your insurance will begin to pay for your medical bills in full.

Medicare Part D: the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Title XII) established the HSA. The tax incentives are based on a successful IRS pilot program and are meant to motivate you to save aside enough money to pay for your medical expenses before your health insurance comes in.

A Health Savings Account and How It Operates

Just like with an IRA, you may reduce your taxable income by the amount contributed to an HSA each year. The money in a Roth IRA grows and compounds tax-free, and withdrawals aren’t taxed either.

You may use your funds whenever you need to pay for approved medical care. More on it in a minute.

The basic notion is that people should be able to deduct contributions to a health savings account. It’s like having an emergency savings account for healthcare costs.

There are two main categories of health savings accounts: those similar to a checking account and those similar to investments. The former are similar to checking accounts in that they are places where you may deposit money that is protected by the FDIC and then use that money to pay for things like groceries or gas with a debit card. Similar to a brokerage account, an investment account allows you to buy and sell investments at will.

Both accounts can be opened to facilitate the distribution of funds. Both forms of HSAs may be found among the offerings of many of the leading HSA providers.

Which Individuals Are Eligible for a Health Savings Account?

To be eligible for a Health Savings Account (HSA), you must have a high-deductible health insurance plan (HDHP).

Due to the lesser likelihood of making claims in any given year, insurance companies provide cheaper premiums in exchange for higher deductibles. To put it simply, lesser risk for the insurer implies cheaper rates for the insured.

An HSA can be opened by anybody with a high-deductible health plan, regardless of who pays for healthcare costs in the household. In other words, those who are self-employed or otherwise do not have access to group health insurance can still purchase an HDHP and pair it with a health savings account (HSA).

While many health insurance providers do offer high-deductible plans, not all of them are compatible with HSAs. The insurance company must conform to state insurance regulations and federal reporting mandates.

What Can I Do With My HSA? (What Constitutes HSA-Eligibility?)

Withdrawals from a health savings account (HSA) can only be used for qualified medical costs. Thankfully, it’s a really huge umbrella.

Everything from the cost of doctor’s visits and prescription drugs to vision correction devices, dental work, in vitro fertilization, contraception, bandages, hospice care, long-term care, counseling, and more is included. For a full rundown of what counts as a medical or dental cost, see Publication 502 from the Internal Revenue Service.

The Internal Revenue Service levies a hefty 20% penalty on top of regular taxes if you use your HSA money on things like travel and entertainment instead of medical care. For account holders over the age of 65, the penalty is waived but taxes must still be paid.

Limitations and Guidelines

HSAs, like any other type of tax-advantaged account, are subject to certain regulations and restrictions. Before selecting a health insurance plan and forming an HSA, be sure you fully grasp all of these restrictions.

Contribution Caps

As of 2021, those with high-deductible health plans can deduct payments of up to $3,600 for individuals and $7,200 for families. In 2022, the maximums will increase to $3,650 for individuals and $7,300 for families.

In a manner similar to IRAs, taxpayers over the age of 55 can make “catch-up contributions” of up to $1,000.

Take into account that the aforementioned maximums reflect total payments, including any that may be made by your employer as part of a benefits package. Each individual HSA can only accept a maximum annual contribution of $3,600.

Deductible Minimum

A high-deductible health plan is one that requires its members to pay a sizable out-of-pocket sum before the insurance company begins paying its share of the bill. For both 2021 and 2022, the minimum deductible is set at $1,400 for a person and $2,800 for a family. There is no lifetime cap imposed by the IRS on the amount that can be saved in this way.

Out-of-Pocket Maximum

In addition to ensuring that your deductible is low, high-deductible health plans (HDHPs) are required to cap your total out-of-pocket expenses at a certain percentage of your premiums.
You can only be held liable for $7,000 per person or $14,000 per family in 2021. In 2022, the thresholds will increase to $7,050 and $14,100.

What Is an HSA Card With No Restrictions?

Debit cards are issued to certain HSA account members. Withdrawals and purchases made with a bank debit card are normally subject to a daily limit. The HSA administrator may also limit the sorts of stores or ATMs where the debit card can be used.

Can I Transfer My HSA to Someone Else?

Only qualified medical costs incurred by you, your spouse, or your dependents will be eligible for tax- and penalty-free withdrawals from your HSA. The Internal Revenue Service will come rapping on your door if you don’t.

Bottom Line

Healthcare costs consume a larger amount of retirees’ incomes. It’s unusual for someone to live to a ripe old age without incurring major medical costs.

In addition to preparing for future medical expenses, an HSA can be used as a retirement savings vehicle in later years. HSAs provide greater leeway than other account types in addition to certain tax advantages.

If there is a negative to these plans, it is that many individuals will be hesitant to use them since they would have to pay for preventative care out of their own money. Try not to shortchange your future health for a little money now. Financially, preventative care may save you thousands of dollars over the course of your life by preventing the onset of more serious health issues that would otherwise require more expensive and intrusive treatments.

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