The ABCs of HSAs

You may have heard about HSAs, or health savings accounts. Those in favor of HSAs tout them as the future of health insurance. Others feel that they can only help healthy and wealthy Americans. But what exactly are they? Are they right for you?

What is a health savings account?

A health savings account has two components:

• An interest-bearing savings account
• Deposits up to $2,600/year ($5,150 for families) in the savings account are tax-deductible. Funds in the account roll over from year to year. Withdrawals are tax-free as long as they are used for healthcare purposes. Once you retire, you can access the money in the account tax-free for any reason.
• A high-deductible health plan
• The annual deductible must be at least $1,050 ($2,100 for families). This means that you receive no benefits until you have paid for the first $1,050 of care.
• Once the annual deductible has been met, coverage begins. You pay the agreed copays and coinsurance, while the plan pays the rest.
• Total annual out-of-pocket costs are capped at $5,000 ($10,000 for families). This means that once you have reached $5,000 in out-of-pocket costs, the plan pays for 100% of your healthcare through the end of the year.