Health Savings Accounts

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.

Even though the Affordable Care Act of 2010 revamped much of how Americans pay for health care, health savings accounts were largely unaffected. They are still an option.

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 $1300 for individuals and $2600 for families. There are other rules, too. Check with your insurance provider about whether your plan is “HSA Eligible”. You can find this out before you sign up for the plan. iThat’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..

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 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 $3,400 for an individual and $6,750 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 switch to a HDHP the first of May, you can contribute $2233 as an individual.

The maximum contribution changes from year to year, so consult the IRS or a knowledgeable tax professional for the limit in any given year..

People over age 55 can make “catch-up contributions” in addition to normal contributions. The limit for catch-up contributions is $1000. The maximum annual out-of-pocket amounts for HDHP is now $6,550 or individuals and $13,100 for families.

 

Eligibility for Health Savings Accounts

Finding Health Savings Accounts

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Criticism of Health Savings Accounts

Have HSAs been a success?

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

Health Savings Accounts have been around for almost a decade and are used by millions f people. Millions more qualify but either choose to not use them or do not understand them. When the federal government passed the Medicare Prescription Drug, Improvement, and Modernization Act in 2005, the law included a provision for establishing HSAs. HSAs are tax-free savings accounts that can be used to pay for medical expenses incurred by individuals, spouses, or dependents.

HSAs are open to individuals covered by high deductible health insurance plans. The annual deductible must be at least $1,300 for individual coverage, and at least $2,600 for family coverage. HSAs are a significant improvement over previous savings vehicles, which were limited to employees of small businesses and the self-employed and required health insurance policies with much higher deductibles.

People with existing medical savings accounts (MSAs) can either retain them or roll the amounts over into a new HSA.

Some employers sponsor HSAs as part of their benefit plans. And some employers even match employee contributions to the HSA. There is no requirement that the employer do so, but the government’s General Accountability Office estimates that over 50% of employers who offer HSA-eligible plans do contribute. The contribution limits are the same regardless of whether the employer or the employee funds the plan. The Wall St. Journal reports that an industry survey showed employees are much more likely to open HSAs if their employer contributes.

Contributions to HSAs by individuals are deductible, even if the taxpayer does not itemize. Contributions by an employer are not included in the individual’s taxable income. Individuals, their employers, or both can contribute tax-deductible funds each year up to the amount of the policy’s annual deductible, subject to a cap of $3.350 for individuals and $6,650 for families. In addition, individuals over age 55 can make extra contributions to their accounts and still enjoy the same tax advantages.

The interest and investment earnings generated by the account are also not taxable while in the HSA.

Amounts distributed are not taxable as long as they are used to pay for qualified medical expenses. HSA funds can be used to cover the health insurance deductible and any co-payments for medical services, prescriptions, or products. In addition, HSA funds can be used to purchase over-the-counter drugs and long-term care insurance, and to pay health insurance premiums during any period of unemployment.

Amounts distributed that are not used to pay for qualified medical expenses will be taxable, plus a 10% penalty to be applied to deter the use of the HSA for non-medical purposes.

The Employee Benefit Research Institute found in a 2008 survey that Americans have become more worried about retirement in recent years, especially with the cost of health care rising.

One of the great things about HSAs is that they are “portable”; people takes their HSAs with them when they leave their jobs. Most people have health insurance through their jobs, so a change in jobs means a change in insurance. HSAs are somewhat like individual retirement accounts (IRAs) in that they are owned by the individual, not the employer.

When the person with the HSA dies, the HSA goes to the surviving spouse if the spouse was named as a beneficiary. If there is no named beneficiary the money goes to the estate and can be considered income for tax reasons in that year.

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