Health Savings Accounts

Health Savings Accounts (HSAs) are a component of High Deductible Health plans (HDHPs) and are a tax advantaged way to save for future medical expenses.  Even if you don’t itemize, contributions to HSAs are tax deductible, up to the following limits.  Individuals with a HDHP can contribute up to $3,350 to an HSA and families can contribute up to $6,750, there is also a catch up provision for those over age 55. 

If you’re fortunate enough to contribute more than you spend in a year and build up a balance in an HSA, that’s ok.  HSAs are not “use it or lose it” plans, if you don’t use the funds for qualified expenses, you can keep the funds in the account for future use.  This can be helpful down the road if you have a year with exorbitant medical bills.  Also, HSA funds can be used to pay for three things you may not have thought of. 

First, HSAs can be used to pay Long Term Care Insurance premiums, subject to a limit.  The amount allowed is based on age and is adjusted for inflation each year.  See the table (Figure 1) below from Revenue Code 213(d)(10).

Second, if you’re over age 65, HSA funds can be used to pay Medicare Part D premiums since these premiums are considered a qualified medical expense.  The premiums for Medicare Part D can be for the account beneficiary, the spouse or a dependent. 

Lastly, Health care continuation coverage, such as COBRA, and health care coverage while receiving unemployment compensation are considered qualified expenses under an HSA.      

With any new President comes uncertainty and with the Trump administration taking over that axiom still rings true, especially in regards to health care.  Definite changes are in store for our Healthcare system under Trump but we anticipate HSAs being a key component of his health care plan.  There are rumors of even expanding the availability of HSAs.

The bottom line is, if you have a HDHP and you’re eligible to open an HSA, we recommend taking full advantage of it and maxing it out.      

Figure 1

Eligible long-term care premiums.

In general.

For purposes of this section, the term “eligible long-term care premiums” means the amount paid during a taxable year for any qualified long-term care insurance contract (as defined in section 7702B(b)) covering an individual, to the extent such amount does not exceed the limitation determined under the following table:

 In the case of an individual with an

  attained age before the close of the

  taxable year of:

The limitation is:

40 or less

$390  

More than 40 but not more than 50

$730  

More than 50 but not more than 60

$1,60  

More than 60 but not more than 70

$3,900  

More than 70

$4,870

 

Source – Internal Revenue Bulletin: 2015-44, Section 3.25, Eligible Long-Term Care Premiums