Insurance coverage

Making Sense of Health Savings Accounts in Insurance Coverage 2023

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As open enrollment season begins, you may need to decide whether a health savings account should be part of your 2023 medical coverage. These tax-advantaged accounts allow users to save for medical expenses.

Many companies will soon — or have already begun — holding their annual open enrollment period for workers to choose their health plan for next year, among other employer-sponsored benefits. Some of these companies will offer so-called high-deductible health plans, which HSAs are tied to, as a coverage option.

“For the most part…a [HSA eligible] is the most cost-effective way to get health insurance,” said Certified Financial Planner Carolyn McClanahan, founder of Life Planning Partners in Jacksonville, Florida.

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Yet fewer companies offer them: in 2021, an estimated 17% of companies offering health benefits offered high-deductible plans, compared to 20% in 2020 and 26% in 2019, according to Kaiser Family Foundation research.

“There was a trend among employers to only offer high-deductible plans,” said Lisa Myers, director of customer services and benefits accounts for consultant Willis Towers Watson. “But they’ve actually backed off a bit…most employees have a choice to sign up.”

Higher deductibles mean lower premiums

An HSA-eligible, high-deductible health plan for 2023 will have an annual deductible — the amount you pay for covered medical expenses before the insurance takes effect — of at least $1,500 for an individual plan and $3,000 for families. However, these plans often have lower monthly premiums than coverage options that don’t have a high deductible.

HSAs, on the other hand, are known for their triple tax advantage: contributions are made before tax, growth is tax-exempt, and withdrawals used for eligible healthcare expenses are also not taxed.

They’re similar to Flexible Spending Accounts, or FSAs, which also allow you to save pre-tax money to use on eligible medical expenses, regardless of your health coverage. But HSAs have key features that may make an HSA-eligible high-deductible health plan a better option for some workers.

Workers with low healthcare costs are good HSA candidates

Healthy workers who anticipate having low medical expenses over the course of the year are good candidates for maximizing the benefits of HSAs, Myers said.

However, even if you spend what’s in your HSA on day-to-day health care expenses, you still benefit from pretax contributions, which reduce your taxable income, Myers said.

For 2023, the annual HSA contribution limit is $3,850 for personal coverage and $7,750 for family coverage. Both amounts are above the FSA contribution limit, which is $2,850 per employee for 2022. (FSA limits for 2023 have not been announced.)

One of the main advantages of an HSA is that, unlike FSAs, the money you pay is not “use it or lose it” – i.e. you can leave it there. money from year to year and, if invested, let it grow over time.

“If you can afford to let your HSA grow, that’s the best bet because the money can grow tax-free forever and be used for medical expenses later,” McClanahan said. “You can still withdraw that money in future years for past healthcare expenses.”

In other words, if you pay your current health care costs out of pocket instead of opting out of the HSA, you can reimburse yourself later – just keep your receipts.

Another advantage of HSAs is that you can change your withholding tax rate at any time during the year instead of determining the amount before the start of the year, as is the case with FSAs.

Older workers — those age 55 or older — can set aside an additional $1,000 in their HSA. Be aware, however, that if you are approaching the Medicare eligibility age of 65, you cannot make contributions to your account once you enroll in Medicare, even if it’s only Part A (hospital coverage).

However, when you reach age 65, you can use the HSA money for any expense, although the withdrawal is subject to tax if not used for healthcare costs. health.

Some companies that offer both HSA-eligible plans and FSAs provide online tools to help their employees determine what makes the most sense, Myers said.