Health Savings Account (HSA): How HSAs Work, Contribution Rules

For nurses, every day is an commitment to the well-being of others. But how often do we pay attention to our own financial health, especially concerning medical expenses? An essential, yet often overlooked tool in safeguarding our financial wellness in this regard is the Health Savings Account (HSA). Let’s dissect what an HSA is, how it works, and how you, as a nurse, can strategically employ it for optimal financial health.

What is an HSA?

HSAs are tax-advantaged accounts meant to facilitate individuals, under high-deductible health plans (HDHPs), in saving for qualified medical expenses.

Contributions to HSAs, which can be made by the individual or their employer, are capped annually and can be utilized to cover various medical expenses, ranging from medical and dental care to prescription drugs, all while offering notable tax benefits:

Tax-Free Contributions: Neither individual nor employer contributions to an HSA are taxed.
Tax-Free Growth: Any earnings from the HSA, through interest or other returns, are not taxed.
Tax-Free Withdrawals: Funds withdrawn to pay for qualified medical expenses are not taxed.

Eligibility and Contributions to HSAs: HSAs aren’t universally applicable. To be eligible, you must:

Be covered under a qualified HDHP.
Have no other health coverage.
Not be enrolled in Medicare.
Not be claimed as a dependent on someone else’s tax return.

Contribution limits for HSAs (as of 2022) stand at $3,650 for an individual and $7,300 for a family. As of 2023, these limits are bumped up to $3,850 and $7,750, respectively. If you’re 55 or older by the end of the tax year, you can make additional catch-up contributions of $1,000. These contributions can come from various sources, including employers, family members, or the individual themselves.

The Financial Mechanics of an HSA: HSAs are intrinsically tied to HDHPs, which typically boast lower premiums but higher deductibles than other plans. The financial efficacy of an HDHP-HSA pairing can largely depend on your specific circumstances, particularly your medical expense patterns.

Minimum deductible requirements to open an HSA in 2022 stand at $1,400 (individual) or $2,800 (family), increasing slightly in 2023 to $1,500 and $3,000, respectively.
The annual out-of-pocket maximum is capped at $7,050 for individual and $14,100 for family coverage in 2022, escalating to $7,500 and $15,000, respectively, in 2023.

Once your annual deductible is met, additional qualified expenses are shared between you and the plan. An example: if your annual deductible is $1,500 and you have a medical bill of $3,500, you cover the first $1,500. Of the remaining $2,000, you may pay 10% to 20%, with the insurance covering the rest.

For nurses, delving into the financial ins and outs of HSAs can illuminate a pathway to greater financial security, particularly when it comes to managing medical expenses. But remember, it's not just a savings vault; it’s a multifaceted financial tool, offering a trifecta of tax advantages and a practical means to invest in your future health. It’s about time we, the caregiving professionals, invest judiciously in our health, both physical and financial.