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Health savings accounts are special types of savings accounts that have tax advantages and that can be used to cover the costs of medical treatment. If you are considering a health savings account, the following answers to some frequently asked questions can help you to make a decision about whether a health savings account is right for you.

What is a health savings account? A health savings account, or HSA, is a savings account that is set aside to cover medical expenses. The account is considered a tax deferred account, which means the government effectively subsidizes the amount of money that you invest by allowing you to avoid taxes on it.

How Does a Health Savings Account Work? Many people purchase high deductible Texas insurance plans because they are an affordable way to buy Texas health insurance. A high deductible plan might, for example, cover medical costs once you have spent $5,000 over the course of a year on your own medical expenses. Because these high deductible plans kick in only after you’ve already spent a lot of money (the deductible), they are often called catastrophic coverage plans. They protect you from huge health care expenses that would cripple you financially, while leaving the small costs to you.

A health savings account (HSA), allows you to put aside the money for the deductible so that you can pay for the healthcare costs you incur with pre-tax dollars. For example, if you had a $5,000 deductible, you could put $5,000 in your HSA. When you had qualifying medical expenses such as dental care, vision care, doctor’s visits, or prescription drugs to buy, you would pay for them with money out of your health savings account. Essentially, then, you’d get your medical care at a discount.

To open a qualifying HSA and enjoy the tax benefits of buying your medical care with pre-tax dollars, you must have a qualifying high deductible health plan. You must also open your account at a bank or savings institution that has been qualified by the IRS as an “HSA Custodian.” Most major banks qualify.

Can I see any healthcare provider I want? Typically, if you have an HSA policy, you will have a network of providers called preferred providers. This is because these policies are normally Preferred Provider Organizations. You can go to any “in-network” physician to receive a substantial discount on your medical costs. You can also go to out-of-network physicians but you’ll pay more.

What if I reach my deductible? If you reach the deductible on the policy by spending the full amount within a one year period, your insurance carrier will pay the balance of your medical costs up to policy limits. The terms of your HSA policy will explain what percentage of the medical costs are paid. With most HSA’s, the portion paid by the insurer once you reach your deductible is 100 percent.

What if I don’t spend all of the money in my HSA? If you do not spend the full amount saved in your HSA, the money is yours to keep. You can continue to keep it in the account and, in some cases, you can even invest it in mutual funds, stocks, and bonds. The flexibility of the HSA accounts is one of the reasons why many people opt for an HSA policy for their Texas health insurance.