Health Saving Account and Obamacare

Can your Obamacare plan be used with a Health Saving Account? What will be an impact of Obamacare on existing Health Saving Accounts? Read below.

High-deductible Plan with a Health Saving Account (HSA)

Health plans with low premium but high deductible are known as high-deductible Health plans. Because of their high deductible they typically result in high upfront costs. One of the ways to reduce expenses is to bind them with a health savings account (HSA). HSA is a tax-advantage savings account that allows you to set aside money to cover medical expenses. The money in the account is tax-deductible as long as they are used for medical purposes.

The Health Saving Account may be used ONLY by health plans that exceed the particular level of annual deductibles. For the year 2014, the health plans must

  • Have an annual deductibles starting at $1,250 for individuals and $2,500 for families
  • Have out-of-pocket costs (including deductibles and copayments) limited at $6,350 for individuals and $12,700 for families

There are limitations for health saving accounts. Some of them have appeared recently as a result of Affordable Care Act (ACA):

  • The maximum amount of income that can be contributed tax-free in 2014 to an HSA is $3,300 for individuals and $6,550 for families
  • You may not any longer use HSA funds to buy over-the-counter drugs without prescription
  • Tax penalty for non-medical withdrawals has been increased from 10% to 20%

Obamacare and your HSA plan

Many Obamacare plans come with deductibles and out-of-pocket limits that are HSA-compatible. Typically, they are bronze and silver plans covering 60 and 70 percent of typical medical costs. If you have one of those HSA-compatible plans, you may set up the Health Saving Account with all its tax benefits.

If your Obamacare plan has smaller deductible, and therefore is not HSA-compatible, you may not make an additional contribution to the existing HSA. However, the existing HSA funds may still continue to be used for qualified health expenses.

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