A Focus on Health Savings Accounts

Buying health insurance requires a certain amount of research before you even begin comparing insurance quotes and part of that research is learning the terminology and types of health insurance that are available. Previous articles have covered the two basic types of health insurance – indemnity plans and managed care plans – and this article covers a specialty subset of health insurance, Health Savings Accounts (HSAs).

Here is the basic description of Health Savings Accounts taken from the U.S. Treasury web page dedicated to HSAs:

“Health Savings Accounts (HSAs) were created by the Medicare bill signed by President Bush on December 8, 2003 and are designed to help individuals save for future qualified medical and retiree health expenses on a tax-free basis.”

HSAs are to be used in conjunction with catastrophic health insurance – also known as high deductible health plans (HDHPs) – and lets you roll the unused money paid into the HSA into the next year to continue building savings toward more serious and expensive medical care as you get older. If you become seriously ill once your HSA pays up to your HDHP deductible no more money will come out of your HSA.

There are four basic criteria that allow an individual to be eligible for a Health Savings Account:

1. You are covered by an HDHP
2. You are not covered by other health insurance
3. You are not enrolled in Medicare
4. You can’t be claimed as a dependent on someone else’s tax return

A key benefit of contributing to an HSA is money put into your account is not subject to federal income tax when you make the deposit. HSAs do have a maximum allowable yearly deposit amount that that changes from year to year. For 2010 the individual contribution limit is $3050 and the family contribution is $6150.

For more information on Health Savings Accounts check out the U.S. Treasury Department’s “All About HSAs” and its HSA FAQ.

Did you know? You can sign up for HSAs with banks, credit unions, insurance companies and other approved companies, and your employer can offer HSAs as a health insurance option.

Takeaways:

1. HSAs allow individuals to save for future medical expenses.
2. You must have catastrophic health insurance to open a Health Savings Account.
3. HSAs offer significant tax advantages for participants.

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