Health Savings Account

Health savings accounts combine high-deductible insurance with tax-free savings that participants can use to stay healthy, or to retire someday. Congress created the accounts in December 2003, but providers and details have been scarce. An HSA is a special bank account owned by an individual, where contributions to the account are used to pay for current, and future, medical expenses. When combined with a qualified High Deductible Health Plan (HDHP), the High Deductible Health Plan covers serious illness or injury, while the HSA pays for medical expenses until the deductibles are met. The HDHP can be an HMO, PPO, or indemnity plan, as long as it meets the requirements set forth by the Treasury Department. An HDHP is a health insurance plan with a minimum deductible of $1,000 for individual coverage, and $2,000 for family coverage. Out of pocket expenses (deductibles and co-pays) cannot exceed $5,100 for individuals; $10,200 for family coverage. Here are some advantages to having this savings account. Control. HSAs are owned by the individual, not an employer, so the individual decides where he or she should contribute, how much to use for medical expenses, what and whether to pay for medical expenses from the HSA account or save the account for future use, where the funds will be held and in what type of investments. Taxes. Annual contributions reduce the individual?s taxable income and withdrawals for qualified medical expenses are never taxed. All of the funds set aside in an HSA grow tax-deferred until age 65, when funds can be withdrawn for any non-medical purpose at ordinary tax rates, or tax-free if used for medical expenses. Flexibility. Unlike most other health care options, HSAs roll over from year to year, and because the HSA account belongs to the individual, the account is portable if the individual changes jobs. Availability is not limited by employer size, all amounts in the HSA are fully vested, and unspent balances remain in the account until spent. Any individual who is covered by an HDHP, is not covered by other health insurance, is not enrolled in Medicare and can`t be claimed as a dependent on someone else?s tax return (children cannot establish their own HSAs) In 2005, tax deductible contribution annual maximums are the lesser of $2,650 for individual coverage or $5,250 for family coverage, or your qualified plan?s annual deductible. And, the accounts come with ?catch up? provisions, allowing people older than 55 to contribute even more.