Take the Worry Out of Paying for Healthcare Expenses

in Your Life

We all need health insurance. Wouldn’t it be great to pay for your healthcare expenses while saving money AND reducing taxes? Enter the First Internet Bank Health Savings Account.

Health Savings Accounts (HSAs) are tax-advantaged personal savings accounts that can be used to pay for medical expenses. When HSAs were created by federal law in 2003, the primary objectives were to encourage all individuals to have medical insurance, save for current and future medical expenses, reduce the overall costs of medical care and persuade individuals to take ownership of managing their medical expenses. In many ways, HSAs for medical expenses are like IRAs for retirement expenses.

HSAs often work like an interest bearing checking account with a debit card to pay medical expenses. To be eligible, you must be enrolled in a High Deductible Health Plan (HDHP), which is a specific type of health insurance policy that generally does not cover the first several thousand dollars of your health care expenses. HDHPs are usually available at lower costs than traditional health insurance policies.

High-deductible policies can be purchased on your own or through your employer. (Speak with your employer or insurance provider to see if your health insurance plan qualifies.) HSA accounts are not available for those enrolled in Medicare.

Benefits of a Health Savings Account

When you establish an HSA, you make tax-deductible contributions to your account and use the funds from your HSA to pay for eligible medical expenses that are not covered by your HDHP. Contributions within your HSA grow tax-free until withdrawn and are never taxed, as long as they are used for qualified health care expenses. Distributions that are not used for qualified expenses are subject to regular income tax and a 20% penalty for non-qualified distributions.

Using a Health Savings Account

The amount you can contribute to an HSA and take as a tax deduction is set by the IRS. The limits are not impacted by your income level, type of income or whether you itemize deductions. Once you establish and fund an HSA, you take distributions from it to pay or reimburse qualified health care costs that are not covered by your insurance. The definition of qualified health care costs is similar to what the IRS uses for determining whether an expense qualifies as an itemized deduction for your tax return.

Key points to consider

  • The combination of an HSA and an HDHP requires you to pay the first several thousand dollars of medical costs.
  • Compare the cost of an HDHP with your existing medical insurance plan.  If you decide to switch to an HDHP, do not cancel your existing insurance until you are approved for the new plan.
  • Establish an HSA with an institution that provides the type of features you want. [Hint: the First Internet Bank HSA is a great one to consider! The account pays interest, funds are portable and your balance can roll over from one year to the next.] Consider the convenience of a debit card to pay expenses and how you want the funds invested.
  • Keep good records because they must be used to show your contribution amount that supports the deduction on your tax return.
  • The tax rules can be complex and you may want to consult your tax advisor to learn how an HSA would work in your situation.


The biggest benefit of this type of arrangement is that you have medical insurance to cover large expenses, you get a tax deduction for your contributions to the HSA, your HSA funds grow tax free and you have funds available for current and future medical expenses that are not covered by insurance. It’s a win-win-win-win for your healthcare expenses!

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