HSA's
Learning about Health Savings Accounts
could save you money -- a lot of money --
over your traditional health plan.
Introduction
In 2003,
Congress created HSAs in response to the rising
costs of health care, to meet the needs of uninsured individuals and families, and
to give employees control over their health care costs.
Overview
An HSA plan
has
two components.
The first component
is a High Deductible Health Plan (HDHP).
The second component
is a Health Savings Account. This account is like an IRA, with great tax incentives.
This special account is owned by individuals. You, the individual, make
contributions into it to pay for current & future medical expenses. In the case of
a small business using a HSA health plan, the employer and/or the employee can
make the contributions. Again, it is used in conjunction with high deductible
health plans. Therefore, the cost of the premium for the insurance part of
the plan is lower.
Another nice feature of the HSA plan
is, the insurance company covers the first dollar of
preventative care costs. On all other medical expenses, the
HSA fund covers the first dollar of the bill until you reach your
deductible. At that point, the insurance company (depending on the
specifics of you policy), pays most or all of the medical bills for the rest of
the year.
WHAT IS A HIGH
DEDUCTIBLE HEALTH PLAN AND WHO IS ELIGIBLE?
WHAT ARE THE ADVANTAGES AND DISADVANTAGES OF OF
HSA'S?
Growth of HSA Policies
The
"Fact Sheet: on Dramatic Growth of Health Savings Accounts" currently
posted at the Department of The Treasury, states (according to the American
Health Insurance Providers) that there was a seven fold increase in the
number of individuals covered by HSA type insurance plans from November 2004 to
December 2005. A mere 438,000 individuals were covered in 2004 but this
increased to over 3.2 million by the end of 2005. The US Treasury expects
this to continue. Based on the current law, the Treasury projections indicate 25
to 30 million people will be covered by HSA policies by 2010.
The HSA Bonus
You decide how HSA
money will be spent on "qualified medical expenses". The IRS allowed expenses are
beyond those health insurers traditionally pay for. Some examples are; band aids,
over the counter drugs (like aspirin), chiropractic care, reading glasses, air filtering systems.
IMPORTANT UPDATE UNDER HEALTH CARE REFORM -- THERE IS A
20% TAX INCREASE ON DISTRIBUTIONS FROM A HEALTH SAVINGS ACCOUNT THAT ARE NOT
USED FOR QUALIFIED MEDICAL EXPENSES.
Another
bonus is your flexibility to lower the premium costs. As your
HSA fund begins to build up money, you may not need the same deductible in
you insurance policy. For instance, if after two years your HSA fund had grown to $3,000, you could raise your deductible from $1,150 to
$2,600. By so doing, you would significantly lower you monthly premium
for the underlying health insurance.
Click
here for Tax Reductions of an HSA.
Click here for an example of a Traditional Plan vs. an HSA.
Click here
for an example of annual cost/benefits of an HSA.
