Health Savings Accounts are becoming more common as more employer’s are offering these plans. Many people use this tax-free money to pay for the cost of Long-Term Care Insurance. This makes what is already affordable an even bigger value for many people.

The amount that individuals may contribute annually to their HSA’s for self-only coverage will rise by $50 next year. For HSA’s linked to family coverage, the contribution cap will rise by $150.

In Revenue Procedure 2017-37, issued May 4, the IRS provided the inflation-adjusted HSA contribution limits effective for calendar year 2018, along with minimum deductible and maximum out-of-pocket expenses for the high-deductible health plans (HDHPs) that HSAs must be coupled with.

Do you have an active account now. If not when your employer’s open enrollment for benefits you may want to consider a health plan which includes an option with a Health Savings Account. You are eligible to participate in a Health Savings Account (HSA) when you enroll in a high-deductible health plan (HDHP) and meet other requirements.

HDHPs typically have a higher annual deductible and out-of-pocket maximums with a lower monthly premium. You must first satisfy the annual deductible before the plan pays for a portion of covered services, known as coinsurance. If you don’t use all the money in the account it stays in your account and earns interest or can be invested like an IRA. Don’t confuse these accounts with FSA’s, flexible savings accounts. Those accounts can not be used to pay for Long-Term Care Insurance Premiums and you must use all the money by the end of each year.

Some companies may make employer contributions to your HSA. This is free money to use toward doctor visits, prescriptions, and even a portion of your LTC premiums.

HSA funds roll over year to year and can be taken with you if you retire or leave the company. If you are no longer enrolled in an HDHP, you cannot make personal contributions to your account.

Personal contributions via payroll deduction are contributed to your account pre-tax. This lowers your taxable income and allows you to set aside money for health care expenses without being taxed on the income. Any interest earned on the account is also tax deferred. If the money comes out for a qualified expense, like for healthcare for toward Long-Term Care Insurance premiums, it remains tax-free.

You may use HSA money to pay for premium up to the allowable limit set by the IRS. For 2018 it is as follows:

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The IRS has increased these amounts for 2018.   

Attained Age Before Close of Taxable Year 2018 Limit 2017 Limit
40 or less $420 $410
More than 40 but not more than 50 $780 $770
More than 50 but not more than $1,560 $1,530
More than 60 but not more than 70 $4,160  $4,090 
More than 70 $5,200 $5,110

There is talk in DC to expand the amount you may contribute to these accounts in the future beyond the current limits. For younger people who may have little or no health expenses, these plans allow for lower health insurance premium, tax-free growth and the ability to plan for long-term care using pre-tax dollars. With more people planning for the financial costs and burdens of aging, Long-Term Care Insurance has become a big part of pre-retirement planning. These premiums are very affordable, especially if you are in good health. You add the ability to use pre-tax money and the value becomes even bigger.

Health Savings Account Advantages:

  • Contributions to the HSA are 100% deductible (up to the legal limit) — just like an IRA if you are self-employed.
  • If you’re an employee the money you contribute is deducted “pre-tax” – so you are not taxed on that amount. Your employer can also make contributions on your behalf, and the contribution is not included in your gross income.
  • Withdrawals to pay qualified medical expenses, including dental and vision, drugs and Long-Term Care Insurance premiums are never taxed.
  • Interest earnings accumulate tax-deferred, and if used to pay qualified medical expenses, are tax-free.
  • You keep the money in your account and the account is portable if you leave your employer or retire.
  • Others can contribute to your HSA. Contributions can come from various sources, including you, your employer, a relative and anyone else who wants to add to your HSA.

Examples of qualified medical expenses include (but are not limited to):

  • Acupuncture
  • Alcoholism treatment
  • Ambulance services
  • Chiropractors
  • Contact lens supplies
  • Dental treatments
  • Diagnostic services
  • Doctor's fees
  • Eye exams, glasses, and surgery
  • Fertility services
  • Guide dogs
  • Hearing aids and batteries
  • Hospital services
  • Insulin
  • Lab Fees
  • Long-Term Care Insurance premiums
  • Prescription medications
  • Nursing services
  • Surgery
  • Psychiatric care
  • Telephone equipment for the visually or hearing impaired
  • Therapy or counseling
  • Wheelchairs
  • X-rays

Remember, unlike flexible spending accounts, you don't have to "use it or lose it" with an HSA each year. In fact, more than three-quarters of HSA account holders withdraw less than they contribute, and roughly a quarter of people don't touch any money from their accounts. This means this pre-tax money is growing and working for you.

Once you retire your health savings account continues to work for you. HSA distributions can pay for Medicare premiums for Part B, a Medicare Advantage plan (Part C), a prescription drug plan (Part D), as well as paying for your Long-Term Care Insurance. This money can also be used for Medicare expenses such as copayments and deductibles if you have any (depending on the Medicare Supplement you choose).

Bottom line is simple: Use your Health Savings Account to help you plan for long-term care. This way you can address the financial costs and burdens of aging and do so even more affordable.

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