Health Savings Account (HSA) – Benefits, Eligibility and Documents Required
A health savings account, also known as HSA, is a type of savings account where you can place pre tax funds aside for medical expenses. Having a Health Savings Account can help you pay for medical expenses while lowering your taxable income.
In India, health savings account is still a fairly new concept with a few entities offering such services. This blog talks about everything you would want to know about HSA.
What is a Health Savings Account?
HSA, which stands for Health Savings Account, is a voluntary payment account managed by the centrally designated Government body. Although it is more popular in the U.S, it is a fairly new concept in India.
It is a unique concept of combining health and investments that can help you save for future medical costs. The money you contribute to an HSA account is invested to ensure you get significant returns on your savings while major medical ailments do not dent your budget.
You can save money on medical expenses like doctor’s appointments, vision and oral treatment, and prescription medications by opening a Health Savings Account (HSA), a tax-advantaged personal savings account.
With an HSA, you will have more control over your health care expenses. You can manage how you spend your money on health care by making pre-tax contributions to an HSA to save for your present and future medical needs and costs.
Only payments for healthcare-related expenses can be made with HSAs. Although one could violate HSA during a non-medical emergency, doing so would result in a fine.
How Does an HSA work?
Any individual can contribute money to a Health Savings Account. You can put money in your health savings account before paying taxes on your income and use it to cover eligible medical costs.
The contributed amount is deducted from your taxable income, ensuring that you pay fewer taxes on your income.
As per the U.S norms, you can withdraw money from your Health Savings Account for medical reasons any time you want.
However, withdrawals for non-medical reasons attract a 20% income tax and a 20% penalty. When you turn 65 years old, you can use the funds in the account for non-medical expenses without being levied any penalty.
HSA as a concept is still relatively unknown in India. But in case you are on the lookout to buy the best health insurance policy in India, try Navi Health Insurance. The benefits include – 100% hospital expenses covered, unlimited online consultations, cashless claims in 14,000+ network hospitals and more. Signing up fo Navi Health Insurance takes less than a minute. Download the Navi app today, check your health score, buy the policy and keep yourself and your family protected from rising medical costs.
Also Read: Buying A Health Insurance on EMI? Here’s Everything You Should Know
What are the Benefits of an HSA?
There are many advantages to opening a Health Savings Account. Some of them are:
- Contributions to an HSA are tax deductible. As a result, the amount contributed to a Health Savings Account can be deducted from your taxable income, bringing your taxable income down.
- You won’t be required to pay taxes on withdrawing money from your HSA account as long as you use the funds for qualified medical expenses.
- It covers the medical expenses of your family members if they are claimed on your taxes.
- HSA account holders do not have to take minimum required distributions and can roll over the money to stay invested in various asset classes for as long as you like.
- HSA accounts are generally offered by employers. However, you can get an account as an individual as well where the funds you contribute to the account are invested in various asset classes like stocks, mutual funds, bonds, T-bills, ETFs, etc. This is a great way of diversifying your investments and maintaining a well-rounded portfolio.
Health Savings Account Eligibility Criteria
FEDO, SBM, and Bank Open have introduced the concept of HSA in India. You can open a health savings account with any banking institution or a credit union where you have your savings account. Or, you can also ask your employer for a recommendation for opening an HSA account.
To open a health savings account in India, you need to be:
- A citizen or permanent resident of India
- Between 21 and 55 years
List of Documents Required for Health Savings Account
In India, you can open an HSA either through an online or physical application. Customers would need the following documents to open an account
- Aadhaar Card
- Pan Card
- Proof of Address
- Passport sized Photograph
Along with the above documents, customers need to maintain a minimum balance of Rs.25,000 in their account.
Why India Needs a Health Savings Account Scheme
The Covid-19 Pandemic has affected millions of lives around the world and continues to affect millions of people as the virus keeps mutating into several variants. This has been a valuable lesson for countless people to contribute more towards our health savings.
Opening a health savings account is one of the best ways of doing this where account holders are protected from exuberant, out-of-pocket medical expenses and also provide us with various investment and insurance benefits.
The HSA funds will not only be limited to hospitalisation expenses but also to wellness chains, OPD clinics, pharmaceuticals and diagnostic centres.
Additionally, it can prove to be a fantastic investment opportunity to help save for future medical and non-medical expenses. The bottom line is, that the lack of funds should not be a deterrent for anyone not getting the required medical treatment.
Just like pension plans help us save for retirement, HSA plans can help us save for unforeseen medical emergencies.
Health Insurance or Health Savings Account: Which is More Beneficial?
It is often difficult to figure out if you should open an HSA or opt for Health Insurance instead. Here we will try to provide you with the pros and cons of each to help you make a wise decision based on your preference:
| Health Savings Account | Health Insurance Plan |
| No Premiums to be paid | Rising Premiums at every annual renewal period |
| Funds can be used for out of pocketexpenses | Funds can be used only for medicalexpenses |
| No Limits on Medical expenses | Limit on Medical expenses |
| Tax deduction on medical expenses butwill be charged on funds used fornon-medical expenses | Tax deduction on medical expenses |
Difference between HSAs, HRAs and FSAs
Refer to the table below to understand the difference between HSA, HRAs and FSAs
| HSA | HRA | FSA |
| HSA stands for Health Savings Account | HRA stands for Health Reimbursement Account | FSA stands for Flexible Spending Account |
| Money can be contributed to savings accounts on a pre-tax basis | Employers provide employees with a monthly allowance of tax-free money designated for medical expenses. | Similar to HRA, where FSA accounts are owned by employers |
| HSAs can be opened by an individual or offered by an employer | Can be opened only by an employer | Can be opened only by an employer |
| Unused amount gets rolled over to the next year | Unused amount gets lapsed | Unused amount gets lapsed |
Final Word
An HSA is a special type of savings account, to pay for medical costs, including those that are not covered by a standard health insurance plan.
It functions like a standard savings account where customers can deposit money and use it for medical expenses. The interest rates on this particular savings account are typically higher than those on regular savings accounts.
So, what do you think? Does India need more HSA service providers or having health insurance would suffice? Feel free to let us know in the comment section.
FAQs
Ans. An HSA ie. A Health Savings Account allows individuals to receive tax advantages on their pre-tax savings which can be used to incur medical expenditures, pharmaceuticals, dental services etc.
Ans. Any individual who is eligible to have their own bank account will be able to open a Health Saving Account. Many organisations provide their employees with an HSA account as well.
Ans. The documents that a bank might need from you to open an HSA are– an Aadhaar card/pan card, proof of address and a passport-sized photograph.
Ans. No, in an HSA account you will not be taxed on the funds that you withdraw from your account for medical expenses. However, if you wish to withdraw funds for other expenses you will have to pay income tax on that amount along with a penalty charge.
