What Is An HSA?

What Is An HSA?

Health Insurance

Health Savings Accounts are a hot topic of conversation right now because they are a prominent feature of the Republican’s proposed health care bill. This minimalist plan focuses on consumer-driven healthcare, pairing HSAs with high-deductible insurance plans.

To boil it down, an HSA is a savings account with tax advantages that can only be used to pay for healthcare. Most contributions to health savings accounts are taken out of payroll and are not subject to federal income tax. The more money you contribute, the bigger your tax break, up to a certain threshold. For a solopreneur, payments can be regularly scheduled and low insurance premiums often make it easier to save money.

The Republican health care plan would nearly double the amount of money people are able to contribute and still receive the benefits, making HSAs even more attractive for small or solo business owners.

All funds contributed to an HSA rollover from year to year. The money can be invested in mutual funds and bonds similar to a 401(k), and gains on an HSA are not taxed. Individuals are able to withdraw from their health savings account, subject to a penalty.

HSAs tend to be used with a high-deductible health plan. As long as a policyholder is able to save enough to cover co-pays and the deductible, this system works well. The policyholder has more freedom to decide what health care needs will be paid for without seeking prior authorization. There is more freedom in how much money is contributed every month or every year. Particularly if you are young, single, or healthy, an HSA can be a great way to plan for health care costs.

HSAs are not always a great choice for people, particularly low-income employees or employees with large families who will struggle to save enough money to cover their health care costs. But for solopreneurs or small business owners who can’t afford a traditional group policy, an HSA encourage personal responsibility and protects individuals in the event of catastrophic medical events.

The biggest downside for a self-employed person using an HSA is the fact that it is both good and bad for people to be in charge of making decisions about how to pay for their own healthcare. It’s good to discourage people from over-using their insurance, but it’s not so great to have to worry about whether or not you can afford the care you need.

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