A health savings account (HSA) is a great way to save money for medical expenses, especially considering that your contributions, interest, and earnings are tax-free. But what happens if you quit your job, retire, or move, causing you to change your health insurance plan? Here are some pointers to help guide you through a health plan switch.
Your HSA Is Yours to Keep
No matter what life events you face, your HSA is yours. Whatever bank or financial institution houses your account has the funds in your name, no matter the plan. Be sure to keep all your HSA bank details as you make the expected changes to your plan so that you can access your account when you are ready.
If You Are Switching to a Similar Plan…
An HSA is designed to complement a High Deductible Health Plan (HDHP). An HDHP allows you to pay a lower monthly premium in exchange for paying higher deductibles when you need medical care. These deductibles can come from your HSA, which functions as a savings account.
When not used for medical expenses, which is its only authorized use, the account may be able to grow tax-free. HDHPs are an excellent option for individuals with low to moderate health needs or who only see a doctor for annual check-ups. If you are on an HDHP and switch to another plan that qualifies as an HDHP, you can continue contributing to your HSA. To understand which plans are categorized as HDHP, you can check with one of our health insurance agents.
If You Are Changing Your Plan Type…
Not all plans are HDHP. Some of the other plans, which come with their own benefits, include:
- Health reimbursement arrangement (HRA): This health plan exists in conjunction with your employer. If you are considering changing jobs, your new boss could have an HRA for the company. An employer controls and funds the account, and employees can receive tax-free reimbursement for qualifying medical expenses up to a specific yearly limit.
- Health Maintenance Organization (HMO) plan: An HMO is a network of health providers. Premiums are less expensive, but you are limited to receiving care from providers in the network.
- Preferred Provider Organization (PPO) plan: This type of plan is similar to an HMO in that it also works with a network of selected healthcare professionals. However, it differs because it allows members to see providers outside the network for an increased contribution.
These plans, and others that do not include high deductibles, are not eligible for use with an HSA. That doesn’t mean your HSA will disappear; it just means you cannot continue contributing to the account. You can, however, use the HSA to continue paying out money as part of your new plan. For example, deductibles, copayments, or medical expenses related to the above health plans are all acceptable uses for your accumulated HSA funds.
If You Enroll in Medicare…
When you turn 65, you become eligible for Medicare. Once you enroll in Medicare, you can no longer make contributions to your HSA. You can still use your health savings account to make payments towards your premiums whether you have Medicare Part A, B, C, or D.
When Not to Withdraw Funds
An HSA helps you save money to cover medical expenses. Because this assists the federal government by reducing the cost burden of your medical care, this account is also tax-free. If you change plans, you might wonder if you can withdraw from your HSA for non-medical expenses. Unless it is an extreme emergency, this is not a good idea. During your working years, not only will you pay income tax on the withdrawal, but you will receive a heavy tax penalty of approximately 20% on any sum you take out.
When Your HSA Becomes a Retirement Account
After you turn 65, you will no longer be penalized for withdrawals for non-medical purposes. Your HSA will essentially function as a retirement account from that point forward. Any money you take out for non-medical purposes will be subject to income tax, but you will not be required to pay a high penalty.
Get Help Rolling Over Your HSA and Starting Your New Plan
If you are considering rolling over your HSA to a new plan or changing your health plan altogether, we are here to help. Contact one of our experienced health insurance agents who can ensure you understand the fine print. Our agency stands ready to help you make the most of your financial contributions to your HSA while preserving your health.