Please explain to me how a HSA works.?

Question

I kinda understand it but still confused. I know you take money out each week and put it in a account to help pay for medical expenses.

So what happens if you leave that company that offers the HSA? Do you get that money in the account that you did not spend?

So you don't get any help paying for medical bills, you just pay the full medical bill on your own?

Ok, I'm sorry. I guess I'm really confused. Please explain it to me.

Thanks for the help!

Answer 1

The previous answer has it mostly correct.

One major issue is that an HSA is never FEDERALLY taxed, if used properly.  Many States still target it for taxation, but it is still a phenomenal deal.  

You can also, by the way, contribute more than your deductible: up to $2900 in 2008 for an individual, and $5800 as a family, so if you have qualified expenses after the deductible, you can still use your HSA to pay for them.  Anyone can contribute to the Health Savings Account: you, your neighbor, your boss, the strange philanthropist down the street, who ever.  The money stays yours, even after you have moved away from the high deductible health plan, or the job that is supporting it.  The money in the account rolls over from year to year, accruing interest, and you can continue to add to it until you 1) turn 65 or 2) ditch the HSA-compatible High Deductible Health Plan.

If you'd like a more detailed explanation, feel free to contact me and I will be happy to explain any nuances, free of charge or obligation.

And, with the RIGHT HSA-compatible health plan, you save a bushel of money, whether an individual, a family, or a business of any size.

Answer 2

The HSA money is always yours to keep whether employed with the same company or not.

An HSA is really two things,

First you must have a HDHP (Qualified High Deductible Health Plan)

The HDHP is a plan with a deductible ranging from a $1,000 -$5,600 for individuals and $2,200 - $11,200 for families. Typically you will pay for all your medical expenses up to the deductible. This means you will pay for doctor visits, prescriptions etc. Keep in mind you will be paying the medical expenses after the insurance company has negotiated the bills. Once you meet the deductible the insurance company usually pays 100% of your care after that. Some plans will only pay 80%.

The Second Part is the actual HSA (Health Savings Account)

This is a tax favored account that allows someone with a Qualified HDHP to deposit money to use for qualified medical expenses. You can think of this as a medical IRA. Your deposits can be written off you taxes just like and IRA. You can spend money on any qualified medical expenses not just your deductible. For example doctor bills, prescriptions, aspirin, band aids, dental and vision care and more.

If you spend the money on qualified expense it is never taxed. Just like an IRA you can take the money out at any time but you would pay taxes and a 10% IRS penalty. Once you reach retirement you can take the money out without penalty but you would pay taxes on any non qualified medical expenses.

For most families an HSA plan will save you money over traditional coverage's, not so much for a single person.

I have a visual explanation on my website here http://www.insurancemadeeasy.biz/HSA.htm...

and a Flash presentation here http://www.insurancemadeeasy.biz/HSA.htm...

It is on the left side

Make sure your company is not doing an FSA they are quite different.

Tyr is not quite right...if the funds are withdrawn for non qualified expenses you will owe tax and a 10% penalty. If you withdraw the money after retirement for non qualified expenses you will also owe tax but no penalty.