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Changing Health Insurance Coverage and Your HSA

HSA and changing health insurance coverage

Health Savings Accounts offer a slew of excellent benefits for account owners. In addition to the triple tax savings of tax-free contributions, tax-free withdrawals for eligible expenses, and tax-free account growth through investing and interest, there are other beneficial aspects of having an HSA. For one, an HSA is portable, meaning it stays with you, no matter if you leave your employer for any reason.

Many HSA owners wonder – “what happens to my HSA when my health insurance coverage changes?” Thankfully, I have the answers.

HSAs and Changing Health Insurance Coverage

A prerequisite for opening an HSA is that you must be enrolled in a high deductible healthcare plan. Life happens, however, and sometimes you have to change your healthcare insurance coverage.

The great thing is that an HSA is portable. That means you’ll keep your HSA regardless what coverage you have. However, some things may change when your coverage changes.

Using your HSA funds

First, you can continue to use your HSA dollars. Period. Your insurance coverage status does not affect the funds in your account. Whether you have new, non- HDHP coverage, or no insurance coverage at all – you can still use those benefit dollars.

It’s important to remember that even if you aren’t enrolled in an HDHP, you still have to follow the IRS rules for purchases with those HSA dollars. You can only use the funds for eligible healthcare expenses or else you will be taxed and penalized.

Contributing to your HSA

Depending on your new insurance plan, your contributions options may change. You can only contribute to your HSA when you’re enrolled in a qualified HDHP. If you change to a non-HDHP plan, you can no longer make contributions.

If you later re-enroll in a qualified HDHP, you can pick up making contributions where you left off.

HSA in Retirement

Once you reach age 65, you can use your HSA dollars for any expense without penalty. This benefit does not change when your insurance coverage changes, even when you enroll in Medicare. Keep in mind, you will still be taxed on non-qualified expenses.

In short – don’t fret about your HSA dollars if you have to change insurance. The account is yours to keep and use, no matter your insurance status.