The Basics of Health Savings Accounts (HSA’s) Insurance Families.com

Health Savings Accounts (HSA) have been around for awhile mostly offered trough employer provided group health insurance plans. On December 8, 2003 President Bush signed a Medicare bill designed to provide a method for individuals to save some money to cover the costs of future qualified medical and retiree health expenses in a tax-free basis.

Health Savings Account offer an additional method of covering health costs to traditional health insurance. HSA’s are savings accounts consumers deposit funds into and use to pay for the costs of qualified health care. HSA make it possible for a person to pay health expenses as needed and offer a savings plan for predictable future qualified medical and retiree health expenses.

In order to open an HSA a person must be insured with a High Deductible Health Plan (HDHP). An HDHP plan usually has lower premiums than some of the traditional health insurance plans. The money saved due to lower insurance premiums can be deposited into a Health Savings Account. Many employer provided health plans now offer their employees the opportunity to pay lower health care premiums for HDHP and offer employees the opportunity to invest an annual amount into a personal HSA and taakinging advantage of the tax beneifts. Currently in order to qualify to open a HSA, a person is required to be insured under a HSA-qualified High Deductible Health Plan (HDHP) and may not be insured by any other health insurance not considered as a HDHP.

The personal contributions offer Health Savings Account holders an “above-the-line” tax deduction. An “above-the-line” deduction allows taxpayers the opportunity to reduce their taxable income by the same amount they contributed to a HSA. There is no requirement to itemize the deductions in order to take this tax benefit.

For the year 2007, the maximum annual HSA contribution is calculated on the statutory limit for the type of coverage. In 2007, an individual can contribute up to $2,850 and contributions up to $5,650 for a family insured with HDHP. Prior to last year 2006, the maximum HSA contributions couldn’t be more then the deductible of the HDHP.

With an HSA the insured person owns and controls the saved money in the account. All the decisions about how this money is spent is made by the account holder. Insureds are not forced to depend on a third party or a health insurer to pay for qualified medical costs. Health Savings Account holders also choose the types of investments made with the money they save in the account. This offers account holders control over their money and the opportunity to invest in the accounts and see them grow.

We use our HSA to cover office visit co-payments, prescription co-payments, deductibles and other medical, dental or health related bills that are not covered under our health insurance plan. These are relatively easy to sign up for if offered in combination with an employer provided health insurance plan. Generally, the employee determines what amount they would like to set aside each month to use from the HSA. However anyone with a High Deductible Health Plan may qualify to open an independent HSA. Consumers can contact banks, credit unions, insurance companies and other approved companies for more information if their employers don’t offer a plan for their employees.

An HSA is not a policy or product that someone purchase. An HSA is a savings account into which money is deposited on a tax-preferred basis. The only insurance policy or product a person is required to purchase in order to have a Health Savings Account would be the High Deductible Health Plan. Self employed people or those purchasing an individual health insurance policy which qualifies as a HDHP are permitted the opportunity to invest in, a Health Savings Account. With an inexpensive health plan and a well funded HSA a person can plan to have catastrophic medical coverage and a way to fund any medical expenses that are not covered under the Health Plan itself.

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