Health Savings Accounts
Make your healthcare budget work harder - A Health Savings Account (HSA) is a great way to make your healthcare budget work harder for you and your family. HSA's are individually owned, tax-advantaged personal savings or investment accounts that may be established in combination with and HSA-eligible high -deductible health plan (HDHP). These accounts are portable and may be accumulated over the years and distributed on a tax-free basis to pay, or reimburse, qualified medical expenses.
According to congressional analysts over 40 million HSA (Health Savings Accounts) will be established in the next 10 years. First available January 1, 2004 Health Savings Accounts were made available thanks to an innovative, permanent federal law designed to make healthcare affordable and allow for the accumulation of tax-free money in the process. The HSA (Health Saving Account) is combined with a qualifing high deductible health insurance plan to provide major medical protection and at the same time help you realize a savings on your health insurance premiums.
Health Savings Accounts (HSAs) are a new way for consumers to pay for medical expenses. Almost anyone with a qualified high-deductible health plan can also have a Health Savings Account. HSAs can save you money on your medical care now as well as provide a good way to save for future medical expenses. HSA funds can pay for expenses before you meet your deductible as well as helps pay for services not covered by your health plan, COBRA coverage during periods of unemployment, medical expenses after retirement and long-term care expenses.
Your high-deductible health plan can be one you get through your employer or a policy you buy on your own. Even if you get your high-deductible health plan or even your HSA account through your employer, you own your account. You decide how much to contribute, how much of the account to use for medical expenses, and which medical expenses you will pay from your account. You also choose whether to pay for medical expenses from the account or save it for future use. Even if you change jobs, your Health Savings Account is still yours.
You can keep the account even if you move to another state, and you can continue to keep it as you grow older. Regardless of where you get your health insurance plan, whether on your own (individual plan) or through your employer, your Health Savings Account funds are yours. Unlike some other types of accounts, you don't lose HSA funds at the end of the year. Unspent balances remain in your account earning interest until you spend them on medical care. This provides a strong incentive for you to spend wisely on your medical care, just like you do on other items you purchase. The incentive to shop around for the best value for your health care dollars is yours.
*** Contribution Limits for 2010 and 2011 - Annual contribution limits for 2010 are capped at $3,050 for an individual and $6,150 for family - whichever amount is less. The annual maximum HSA contribution will change each January 1st based on the CPI. There are no maximum limits on the account accumulation. The legislation provides for an additional contribution (and tax deduction) for those who turn age 55 before the end of the tax year. The additional contribution amount remains $1,000 in 2010 and 2011. Contributions may be made until April 15, of each year.
High Deductible Health Plan (HDHPs) Defined: (Source - Department of the Treasury)
You must have coverage under an HSA-qulaified "high deductible health plan" (HDHP) to open and contribute to an HSA. Generally, this is health insurance that does not cover first dollar medical expenses. Federal law requires that the health insurance deductible be at least (in 2010 and 2011):
- $1,200 -- Self-only coverage
- $2,400 -- Family coverage
In addition, annual out-of-pocket expenses under the plan (including deductibles, copays. and co-insurance) cannot exceed:
- $5,950 -- Self-only coverage
- $11,900 -- Family coverage
Are HSAs and HDHPs the same?- No. Health insurance companies provide HDHPs. HSAs are offered through financial institutions. Consumers who enroll in an HDHP may be eligible to open an HSA. Clients should consult with a financial advisor to determine if they meet HSA-eligibility criteria and whether or not an HSA/HDHP is a good fit for them financially.
How do I know what is included as “qualified medical expenses”? (source US Treasury Department)
Unfortunately, we cannot provide a definitive list of “qualified medical expenses”. A partial list is provided in IRS Pub 502 (available at www.irs.gov). There have been thousands of cases involving the many nuances of what constitutes "medical care" for purposes of section 213(d) of the Internal Revenue Code. A determination of whether an expense is for "medical care" is based on all the relevant facts and circumstances. To be an expense for medical care, the expense has to be primarily for the prevention or alleviation of a physical or mental defect or illness. The determination often hangs on the word "primarily."