Health Savings Accounts (HSA)
The HSA (Health Savings Account) was created by President Bush with the enactment of the Medicare Prescription Drug, Improvement and Modernization Act of 2003. Health Savings Accounts are meant to help individuals save for their medical expenses while keeping monthly health insurance premiums low. The federal government provides tax benefits to these accounts, and insurance companies offer HSA plans that are intended specifically to work with these accounts. HSA plans typically have low monthly premiums and high deductibles.
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Advantages to Health Savings Accounts (HSA)
- There is a low monthly premium.
- Savings toward health expenses are tax deductible, even if you don’t itemize your deductions.
- HSA earnings are tax-free.
- Unused money rolls over for future medical costs.
- Your employer can put a portion of your paycheck tax-free into your HSA.
Limitations to Health Savings Accounts (HSA)
- You are responsible for paying the deductible and coinsurance on medical expenses, whether directly or through contributions to your HSA. The insurance plan does not begin until the deductible is paid.
- Limitations vary depending on the HSA plan you select.
- Because monthly premiums are low, the plan has a high deductible. The government set the minimum deductible for 2006 at $1050 for an individual and $2100 per family. HSA plans vary; check with your insurance company for specific details.
Health Savings Account (HSA) Product Features
You must have a qualifying High Deductible Health Plan (HDHP) in order to open an HSA. Accepting a high deductible (the dollar amount that you pay each year before your insurance coverage begins) means your monthly costs are lower. This can save you money, especially in months you don’t go to the doctor!
Money you contribute to your Health Savings is used for deductibles or other medical expenses. Any savings you don’t use one year will roll over into next year, giving you an even greater cushion for health-care costs in the future.
HSA earnings are tax-free. Furthermore, your annual contributions to the account are tax deductible, even if you don’t itemize your deductions.
To open an HSA, you must have a high-deductible health plan (what is sometimes called “catastrophic” coverage). Once you have a qualifying health plan, you can open an HSA at the bank, through some employers, or sometimes even directly through your insurance company.
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