Health Savings Accounts

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A Health Savings Account is an alternative to comprehensive health insurance; it is a savings vehicle that allows people a different way to pay for their health care. The idea is that people can pay for routine health care services out of their pockets and save for future medical health expenses. The money in the HSA grows tax-free.

You use HSAs in conjunction with traditional health insurance policies as long as the policies are “high deductible” policies.

HSAs were advocated by free market theorists as a way to control health care costs by introducing additional market discipline to the medical industry. These advocates hope that people with HSAs will be more discriminating about health care purchases and shop around, rather than go anywhere at any cost when an insurance company is paying for it. They also function as essentially a tax cut.

The current debate in Congress on health care reform has generated many proposals by both Republicans and Democrats to change the rules on HSAs. At this point, it is unclear what will happen to health savings accounts if and when a health care reform program is enacted. They may very well survive, but and be part of the new system.

The rule is that you have to be covered by a High Deductible Health Plan (HDHP) to be able to take advantage of HSAs. The government set this rule so people did not start HSAs but have no insurance at all. The minimum deductible in the HDHP is $1100 for individuals and $2200 for families. That’s a pretty high deductible, and HDHPs are usually cheaper than more traditional health insurance with lower deductibles. Tthe money that you save on insurance can be put into the Health Savings Account. That’s the idea that advocates push, anyway. What the HDHP actually covers can vary widely. The trade group America’s Health Insurance Plans says 99% of employer-sponsored HSAs cover preventative care before any deductible is met.

You own and you control the money in your HSA. You decide how to spend the money without a health insurance company telling you what to do. You also decide what types of investments to make with the money in the account in order to make it grow.

“Tax Relief and Health Care Act of 2006″ was passed by both houses as Congress in December and signed into law by President Bush on December 20, 2006. When he signed the law, Bush said it was estimated that 3.6 million HSAs had been opened.

The free market think tank National Center for Policy Analysis published a survey indicating that “the number of HSA- covered lives and accounts will double from January 2008 to January 2009″ and reporting that financial advisors have started warming to HSAs. Mercer LLC estimates 19% of employers will offer HSA-eligible plans in 2009. Large companies are more likely to offer them than small companies.

The maximum yearly contribution is now $2,850 for an individual and $5,650 for a family. The maximum HSA contribution is pro rated based on the number of months of the year that you are eligible. In other words, if the you have a conventional low-deductible insurance plan from January through April but then drop it the first of May, you can contribute $1900 for an individual.

Come 2009, the maximum contribution will increase to $3,000 for individuals and $5,950 for families.

People over age 55 can make “catch-up contributions” in addition to normal contibutions. The limit for catch-up contributions is $800 in 2008. The maximum annual out-of-pocket amounts for HDHP is now $5,500 for individuals and $11,000 for families.

The government is also allowing a one-time-only rollover of Flexible Spending Accounts into HSAs and a once-in-a-lifetime rollover of IRA funds into an HSA (subject to annual HSA contribution limits.)

Eligibility for Health Savings Accounts

Finding Health Savings Accounts

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Criticism of Health Savings Accounts

Have HSAs been a success?

Proposals to reform health care by socializing medicine bring howls of protest from many. HSAs are in a way the opposite approach to health care reform. While socialized medicine would effectively bring about a government monopoly, HSAs encourage a competitive market to decrease costs and increase quality.

This website is an informational site only. We do not buy or sell or recommend HSA plans.