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Jane Young: Many plans not eligible for HSA

By: Jane Young
December 3, 2017 Updated: December 5, 2017 at 12:19 pm
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photo - Jane Young- It's Your Money
Jane Young- It's Your Money 

As health insurance premiums and health insurance deductibles continue to rise, health savings accounts (HSA) are especially helpful in dealing with the high cost of medical coverage. Unfortunately, most health insurance policies don't qualify for an Has, which operates similar to a 401(k) plan where you can invest and accumulate pretax dollars. Unlike a 401(k), the funds can be withdrawn tax-free if they are used to cover qualified medical expenses. Without an HSA, you can only deduct medical expenses if you itemize and your medical expenses exceed 10 percent of your adjusted gross income. You are the owner of your HSA account, and funds that aren't spent can be rolled over from one year to the next. Additionally, your HSA is portable and may be transferred. You are not eligible for an HSA if you are on Medicare or can be claimed as a dependent.

To qualify for an HSA, you must have a high-deductible health insurance plan (HDHP) and cannot have other health coverage. However, even if you have an HDHP, there is a good chance you will not qualify for an HSA. When shopping for insurance, an HSA should appear under the basic description or it probably isn't eligible. If health insurance is provided through your employer, specifically ask if the plan qualifies under IRS rules.

According to the IRS, HSA eligible insurance must be high deductible and cannot offer any benefits beyond preventive care until you meet the annual deductible. If your insurance offers a co-pay for prescriptions, emergency or doctor visits other than preventative checkups and immunizations before you reach your deductible, it doesn't qualify.

Additionally, for 2018 the minimum annual deductible for self-only coverage is $1,350, and the maximum out-of-pocket cannot exceed $6,650. The minimum annual deductible for couples is $2,700, and the maximum out-of-pocket cannot exceed $13,300. Some plans don't qualify because the maximum out of pocket is too high. According to the Kaiser Family Foundation, in 2016, only 19 percent of all high-deductible plans were HSA eligible.

You can generally open an HSA at most banks and credit unions. If your policy qualifies, open an HSA as soon as possible. You can only use HSA funds for expenses incurred after the HSA has been opened. If you contribute to an HSA and switch to a nonqualified plan, you can continue using the HSA funds you had previously contributed but can't make contributions.

Once you reach age 65, there is no longer a penalty for spending your HSA on expenses other than qualified medical expenses, but you must pay ordinary income taxes. Before age 65, there is a 20 percent penalty, in addition to ordinary income tax, on withdrawals that aren't used to pay qualified medical expenses.

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Jane Young can be reached at jane@morethanyourmoney.com.

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