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Health Savings Accounts (HSAs) under the Affordable Care Act

September 9, 2015

Health Savings Accounts (HSAs) under the Affordable Care Act

With the ongoing implementation of the Affordable Care Act, each year a growing number of people are enrolled in health insurance plans offered under the state exchanges, which are Affordable Care Act (ACA)-compliant.

Since their inception in 2003, Health Savings Accounts have been used as a consumer-driven method of saving for, and paying for, medical expenses. These are accounts that are available to people who have high-deductible health insurance plans and wish to set aside money to help pay for medical expenses not covered under their plan.

How does the Affordable Care Act affect HSAs? What should HSA owners know about their accounts?

First, a bit about the benefits of an HSA:

  • Those who have a qualifying health insurance plan can contribute an amount each year to the HSA account tax-free. The annual contribution limits are set by the IRS and increase annually based on the current cost of living.
  • If you don’t have a lot of medical expenses, the HSA account continues to accumulate, and can be used at any time it is needed for medical expenditures.
  • These accounts can be checking, savings or investment accounts that can become another tax-deferred way of saving for retirement when medical expenses are low. Consult your tax advisor for how an HSA might benefit you, depending on your particular situation.
  • Funds from these accounts can be used for dental care, vision care and other qualified expenses that are typically not covered by an inexpensive health insurance plan.

How the Affordable Care Act (ACA) has changed HSAs:

While the concept of an HSA has not changed under the Affordable Care Act, and HSA accounts are still available for those who have qualifying insurance plans, it is important to note that there have been a few changes made:

  • With the introduction of the ACA, funds from an HSA can no longer be used to purchase over-the-counter medications that do not require a prescription, with the exception of insulin.
  • The IRS penalty for using your HSA to pay for non-qualified expenses has been increased from 10% to 20%. You are required to save the receipts for distributions from the HSA account for tax purposes.

Under the ACA, state exchanges continue to offer many high-deductible health plans (known as HDHPs), which allow an individual to spend less on insurance premiums each month in exchange for a higher deductible to be paid before many of their medical bills will be paid by the insurance company. However, just because a health insurance plan has a high deductible, it does not automatically qualify the participant to open an HSA. In addition to a qualifying deductible, to be HSA-eligible, a plan also must comply with the maximum annual out-of-pocket expense limit set. If you have an HSA account or are thinking of opening one, check very carefully to make sure your plan qualifies.

What does this mean if I have an existing HSA?  Check the limits on your health insurance plan. If your plan no longer qualifies for an HSA or you changed plans and your new one is not HSA-compliant–you can still use the funds to pay for qualifying out-of- pocket medical expenses, but you can no longer add any further contributions.

If your plan does qualify – you’re in luck! HSAs can be a great way to ensure you can continue to afford your health care in the coming years. Texas Gulf Bank offers Health Savings Accounts to qualified customers.   Member FDIC