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- Health Savings Accounts are tax-sheltered savings accounts
- HSAs protect individuals and families in high-deductible health plans
- Funds put in a qualified Health Savings Account can stay until used
- Funds in the HSA grow until distribution at age 65 as tax-free income
- Rules allow for employer contribution
The IRS defines HSA requirements including the maximum and minimum deductibles and coverage. It is a program that is consumer focused and provides an opportunity for subscribers to control health events. Comparison shopping is an important tool for finding the best health plan for individual or family needs. Comparison shopping can assess the benefits of tax-deferred income and high deductible plans. Start comparing health insurance plans now by using our FREE tool above!
What is a High Deductible Plan
The IRS defines the minimum deductibles required for a high deductible plan. It is a two-tiered definition, one for individual plans and one for family or multiple person plans. The IRS sets rules for contributions to the Health Savings Accounts, and this includes funds from all sources.
- 2016 Individual plan deductible $1,300
- 2016 Family plan deductible $2,600
- 2016 maximum individual contribution $3,350
- 2016 maximum family contribution $6.750
- 2016 max for aged 55 plus $4,350 and $7,750
Benefits of an HSA
For the tax year 2016, rules permit tax-deferred contributions up to $3,350 for single person health plans and up to $6,750 for multiple person plans. These tax-deferred contributions reduce taxable income in the year in which paid. Those aged 55 and older can add $1,000 to the limits. The rules require that funds must stay in the HSA until used for medical expenses, and if withdrawn a 20 percent penalty must apply.
At age 65, account holders can use all funds in the HSA for any expenses.
Funds in the account accrue tax-free. The primary benefit is to finance the required deductible with tax-deferred money that also reduces the individual or family tax obligation for the year. The use of a health Savings Account opens high deductible plans to more subscribers, and they can take advantage of lower premiums.
HSA and Obamacare
Having an HSA can make Obamacare better for an individual or family subscriber. A Health Savings Account reduces taxable income for purposes of setting Obamacare benefits. Using tax-deferred savings to pay deductibles makes the plan more valuable. Subscribers can enjoy higher amounts of coverage because their deductibles were met using tax-free funds. The ACA rules permit employer contributions up to the overall individual or family limit.
HSA and MAGI
The use of a health savings account will reduce the gross income figure used to calculate modified adjusted gross income. Obamacare uses the modified adjusted gross income for individuals and families to determine income for the purpose of premium tax credits, monthly subsidies, and payment assistance benefits. The improvement to MAGI can help those with incomes near 400 percent of the federal poverty guideline. It can add benefits for those who would have received little or no benefits otherwise.
HSA and High Deductible Silver
A Health Savings Account and a high deductible Silver Plan makes a powerful combination for an individual or family subscriber. The Silver Plan coverage ratio is good at 70 percent or more of plan costs. Because it has a high deductible, the premium payments are lower than other Platinum, Gold, and Silver plans. With adjusted income from Health Savings Account, subscribers can qualify for premium tax subsidies. Seventy percent coverage provides protection for health risks. The high deductible is not a barrier when the Health Savings Account funds can pay up to the deductible threshold to trigger insurance payments. The untaxed savings finance the deductible in the event of need. If not needed, the funds stay in the HAS and accrue interest. Both principal and earnings will be tax-free when distributed at age 65.
The IRS provides a dedicated form for claiming the income tax benefits of a health savings account. The form IRS 8889 Health Savings Accounts confirms the tax-deferred status of the funds and regulates the treatment of distributions. Holders can avoid early withdrawal penalties by qualifying for exceptions.
High Deductible Plans
Obamacare has high deductible plans, and they are also available off the marketplace. Those with incomes near or above the 400 percent of the poverty level can widen their choices of plans to include more high deductible selections if using a health savings account.
The need to pay the deductible may never occur; healthy people may not approach the levels needed to kick in maximum insurance payments.
The advantages of the insurance will be realized in coverage of risk and payment if needed from tax-deferred savings. The monthly costs of insurance premiums will be low in any metal band by selecting among the high deductible options
What are Deductibles?
Deductibles are an important feature of Obamacare plans. Deductibles are consumer paid amounts needed to trigger payments from the insurance provider. For many services, the insurer pays nothing until the subscriber passes the deductible limit. Deductibles balance premium payments in that high deductibles yield low premium payments. Deductibles are not premiums and they do not count towards the monthly insurance bill.
HSAs Have Greater Use After Obamacare
Obamacare has made health savings accounts potentially more valuable to a greater number of people. The benefits of reducing income for tax purposes now also include the gains from reducing it for Obamacare purposes too. High deductible plans offer low premiums. With the advantage of tax-deferred funds in a health savings account, high deductibles no longer pose a barrier to getting full benefits of insurance paid costs. Comparison shopping is an excellent method for determining the benefits of Obamacare and other forms of private health insurance when used with a Health Savings Account. The factors include benefits under Obamacare when savings adjust income downward and lower premiums by selecting high deductible plans. Start comparing health insurance plans now by using our FREE tool below!