What are Health Savings Accounts?

Health Savings Accounts (HSAs) are the main component of President-elect Donald Trump’s health care plan. They have been around for over 10 years, created while President George Bush was in office, but they’re underused. Republicans like them because they allow the account owner to prioritize their own health expenses within a set budget.

With HSAs, consumers manage spending until they reach the deductible amount. In order to be paired with your medical plan, health savings accounts require minimum deductible amounts and limits on contributions. For 2016, the deductible limit was $1,300 per individual or $2,600 for a family. You can choose your doctors, facilities and services. Out-of-pocket expenses are capped at $6,550 for an individual plan and $13,100 for families.

The contribution limits for 2016 are $3,350 for an individual and $6,750 for a family plan. If you are over 55, you may make catch-up payments of up to $1,000.

An HSA is not a health insurance plan. It’s a savings account that can only be used for medical expenses, which include dental expenses and prescription medications. A high-deductible health insurance plan must be paired with it. Your insurance provider or human resources department knows which health plans are HSA qualified. Learning more about your health care options in general helps to make wiser decisions regarding payment for health services.

More than 60 percent of employers offer high-deductible plans with HAS combinations, up 45 percent between 2014 and the middle of 2016 according to consulting firm Devenir. Enrolling in HSA accounts is separate from health care sign-ups and may be one reason they are underused. Contributions are made on a pre-tax basis; the accrued interest and money withdrawn for medical payments is not taxed either.

Trumpcare

Trump believes that HSAs can replace the current health insurance options offered by Obamacare, and he thinks that they may be just as affordable. Until recently, HSAs have been a well-known product among those with higher incomes who have larger tax liabilities. If you don’t pay any taxes, a tax credit is not going to help make this plan more affordable. Health savings accounts provide protection against catastrophic illness and injury, they use tax-exempt money to pay medical expenses, and they can be a good option for many people.

The Trumpcare plan is not specific about how HSAs will be useful, but House Speaker Paul Ryan’s A Better Way gives some indications. In it, he suggests increasing the maximum contribution to the account, letting those with impending medical expenses set up an HSA and use it within 60 days, and allowing spouses to contribute extra payments to the same HSA to reach the maximum limit. They would also offer accounts to American Indians as well as military personnel and their families.

There may be multiple forms of HSAs offered and a possible monthly tax credit to offset health care costs. An additional leftover credit could also be deposited into another account and used for other medical care, like over-the-counter drugs.

Currently, HSAs can only be used for premium payments in certain situations. For health savings accounts to be most beneficial, they will need to be expanded and offer broader benefits. People with low to moderate incomes may not be able to utilize HSAs since these accounts require saving extra funds for medical care, an option that many families in America don’t have. Without subsidies, there needs to be another way to make them affordable to those who do not have enough income to initially fund them. Government funding could aid the HSA program to make it more affordable.

HSA account balances roll over year to year while the similar employee-sponsored flexible spending account (FSA) does not. If you have a flexible spending account (FSA) or are enrolled in Medicare, Medicaid or Tricare, you will not be eligible for an HSA. It’s possible that changes to HSAs under Trumpcare may enable those with government-sponsored health care plans to use them in the future.