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Wading through health insurance options when starting a new job or during open enrollment can be confusing. The alphabet soup of terminologies sure doesn’t help.
For instance, if your PPO is an HDHP you might be able to open an HSA and save money toward your health expenses. Huh?
In this article, we’ll demystify some of that medical insurance jargon and explain the benefits, rules and nuances of health savings accounts so you can make the best decision for yourself and your family.
What Is an HSA?
HSA stands for health savings account, which is distinctly different from a regular savings account. A health savings account is a tax-advantaged account you and your employer can contribute to in order to pay for eligible medical expenses using pre-tax dollars.
You can use your HSA funds to pay for medical costs as you incur them or let the money in your HSA account grow by investing those dollars.
There are a bunch of financial benefits with having an HSA, which we’ll discuss later, but first it’s important to know how to open a health savings account.
How Do You Open a Health Savings Account (HSA)?
The first thing you should know about an HSA is that you need to have a high deductible health plan, or HDHP, in order to be able to contribute to one.
With high-deductible health plans, you generally pay less in premiums but have to meet a high annual deductible before your plan pays.
A deductible is the money you pay out-of-pocket before your health insurance kicks in and starts providing certain benefits. The premium is the monthly fee you pay to get health coverage.
You can’t open a health savings account with just any health plan with a high deductible. According to the Internal Revenue Service (IRS), the deductible has to be no less than $1,400 for an individual or $2,800 for a family to qualify as a high deductible health plan in 2022.
In addition, in order to be eligible to open an HSA you can’t be enrolled in Medicare, have other…
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