Consumer-Driven Health Plans (CDHP) with health savings accounts (HSAs) provide you with a vehicle to put away money, tax-free, for your health care. And it is always yours.
- What is a CDHP? CDHPs come in various forms, but most commonly means offering a high-deductible health plan (HDP) that is paired with a personal savings account, such as a Health Savings Account (HSA), for out-of-pocket costs.
- What is a HDP? An HDP is a plan that has, as the name denotes, a deductible higher than the deductible in more traditional plans for the cost of your medical expenses before the insurance company pays for the cost of any medical expenses. There are numerous advantages to this type of plan.a) First, monthly premiums are typically lower than in traditional health plans, meaning you pay less to the insurance company on a monthly basis than you might in a traditional plan.
b) Second, these plans are coupled with a tax-favored “personal savings account”.
- What is an HSA? An HSA is an individual savings account that can be funded by you and to which your employer can make contributions. Money that you use to fund your HSA has three tax advantages:
a) The money goes into the HSA on a pre-tax basis, meaning that the money is not counted toward your taxable income for that year.
b) Any earnings on the money in your HSA grows on a tax-free basis.
c) The money is not taxed when used to pay medical expenses. The IRS annually determines the amounts that individuals can contribute to an HSA for individual or family coverage. Your plan will tell you what those limits are, what your deductibles are and what your total out-of-pocket maximums can be.
- “Discount” on Health Care. Because HSA money is tax-favored, paying medical expenses with money in your HSA costs you less than if you paid for your out-of-pocket medical expenses, deductibles, co-pays, etc, with the money in your regular checking account.
- Tax-Free Payments. When used for qualified medical expenses, the money is never taxed. Qualified medical expenses include things such as:a) Most services provided by licensed health providers.
b) Diagnostic services and prescriptions.
c) Other medical expenses covered by your plan.*
- Money in Your HSA is Yours. When you or your employer make a deposit into your HSA, it is yours until you spend it. There is no annual “use it or lose it” rule. The money travels with you even if you change plans, change employers, or retire. It’s a way to save money for medical expenses in your retirement years if you don’t use the money during your working years.
- Invest Your HSA Dollars. With an HSA, you may have the ability to invest your savings in a variety of investment offerings, but any investment considerations need to be made in conjunction with your financial consultant to ensure that whatever choices you make are the best ones for you.
- Save For Retirement. You can use the account to save for retirement. At age 65, you can start using your HSA dollars for expenses other than medical expenses. HSA withdrawals for eligible health care expenses will continue to be tax-free. HSA withdrawals for non-medical expenses will be taxed at your current tax rate, but no additional IRS penalty would be assessed.
- You Can Use Your HSA for Your Family. You can use your HSA to pay for the qualified medical expenses of anyone you claim on your taxes, even if you’re only enrolled with single coverage. However, if the tax dependent isn’t covered under your plan, his/her expenses won’t be applied toward your deductible.
NARFA continues to exist for the health and long-term stability of its member businesses. Each year, the employee benefits landscape continues to change, and NARFA believes a strategic approach is critical to businesses being able to offer best in class employee benefits programs while also controlling costs and retaining great talent.
Please contact us to learn more about our programs, and why 99% of our members stay with NARFA year after year!
*please contact your plan sponsor for more information