Deciding on the right health insurance plan that appropriately covers your medical costs is an essential (albeit not fun) part of life. When you’re dealing with an ongoing health problem or you have something come up suddenly, the last thing anyone wants to worry about is whether you can afford the care you need.

If you find yourself constantly worried about how you’ll pay your existing medical costs or whether you’ll be able to handle unexpected expenses should your health take a turn, there may be a better option for you. One such option is a Health Savings Account (HSA), which makes affording medical costs easier for people with high deductible health insurance plans. In this post, we’ll give you the information you need about HSAs, whether you’re familiar with them or are just learning about them for the first time.

What is a health savings account?

Simply put, a Health Savings Account is a tax-exempt account designed to pay for medical expenses – so long as you are covered by a High Deductible Health Plan (HDHP). Having a plan with a high deductible means that you’ll be paying for a lot of medical costs out-of-pocket, and your insurance plan will only start to pay for things when you finally reach the amount of your deductible.

Throughout the year you can contribute money to this account and then withdraw it when you need to pay for qualified medical expenses. Plus, it’s not a “use it or lose it” situation: any extra money in the account gets rolled over each year. Qualified expenses that you can use money from your HSA on include things like dental procedures, fertility treatments, mobility aids like wheelchairs, and prescription medications. The huge financial benefit of having an HSA is that your contributions are tax-deductible, and your withdrawals are tax-free. So, by using this account to store the money you put in it and then using it to pay for medical costs, you can avoid the taxes you would normally have to pay out-of-pocket or with your HDHP.

Some employers may offer and contribute to your HSA, but if not, you can also open one yourself and contribute to it on your own, as long as you are insured with a High Deductible Health Plan. The IRS has set contribution limits depending on the minimum and maximum annual deductible you have with your HDHP, and whether you have self-only or family coverage. Refer to the table below for the annual contribution limits for 2022, as reported by the IRS.

	Self-only coverage	Family coverage
Minimum annual deductible	$1,400	$2,800
Maximum annual deductible (and other out-of-pocket expenses)	$7,050	$14,100

HSA pros and cons

While there are many benefits a Health Savings Account can provide, it’s not the right option for everyone. When considering HSAs and deciding whether you should open one, it’s important to look at all of the features objectively. Here are some pros and cons of having an HSA:

Pros

• Contributions are tax-deductible and withdrawals are tax-free
• The money in the account earns interest and grows tax-free (click here and scroll to “Health Savings Account” to see Hickory Point Bank’s HSA interest rates)
• Money can be withdrawn to pay for expenses that you’d normally be paying out-of-pocket before you reach your deductible
• Unspent money in the account at the end of the year gets rolled over to the next year
• The money can be used on qualified medical expenses for account holder’s spouse and dependents

Cons

• You must be covered by a High Deductible Health Plan, and a HDHP isn’t the best option for everyone (especially if you know you’ll have a lot of medical expenses – you may find you’ll be better served by a health plan with more coverage)
• You can’t use the money on anything, only certain qualified medical expenses
• If you withdraw money for non-qualified expenses before age 65, you’ll owe income tax and 20% penalty fee
• If you withdraw money for non-qualified expenses after age 65, you’ll owe income tax on the amount

How to qualify for a health savings account

By now you know that you need to have a High Deductible Health Plan to qualify for a Health Savings Account. But that’s not the only requirement to meet before you can open this account. To qualify for an HSA, the following must be true:

• In addition to being covered by an HDHP, you don’t any other coverage (besides the additional coverage that the IRS deems okay to have). Click here to learn what additional coverage is okay to have and still qualify for an HSA.
• If your spouse has non-HDHP coverage, you aren’t covered by their plan.
• You are not enrolled in Medicare.
• You are not claimed as a dependent on someone else’s tax return.
• You have reviewed any additional requirements and you meet them all

So, now you may be asking yourself the big question: should I open a health savings account? The short answer to this question is: if you qualify and think it will help you, then yes! But we know this is an important decision to make, so take your time and review all of the facts before you decide. It can be very helpful to talk to a professional who can give you more information and answer your questions. Here at Hickory Point Bank, we have several locations around Central Illinois that you can come visit. We’ll be happy to talk with you about our HSA offerings.

Now that you know what exactly an HSA is, the benefits of opening one, and how to qualify for a Health Savings Account, we hope you have the confidence to make an informed decision. If you decide a Health Savings Account is a good choice for you, our team at Hickory Point Bank can help you open one! Visit our HSA page and apply for one online or better yet, come see us at any of our Central Illinois locations today and we’ll walk you through the process.

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