What is a Health Savings Account?
Yup, you're hearing about Health Savings Accounts, perhaps at work, in the news, or among friends and family. So you're wondering what exactly is a Health Savings Account. In short, a Health Savings Account, or HSA, is a tax-advantaged plan that may be coupled with a high deductible health insurance plan.
Why would I want a Health Savings Account?
Since high deductible plans are intended to provide coverage towards major medical expenses, HSAs provide funding for additional qualified expenses. As well as providing peace of mind, HSA funds may also be invested, withdrawn or even spent on other non-medical needs (though penalties and taxes apply for non-medical purchases).
HSA Eligibility, Who Can Contribute, and Tax Benefits
With the popularity of HSAs on the rise, The Washington Post (Feb 22, 2008) has put together a number of Q&As that explain some of the eligibility, contribution and other tax issues of HSAs. Some of the key aspects to HSAs include:
- Available to any qualified high deductible policy holder under the age of 65.
- Deductibles (as of 2007) must be at least $1,050 for individuals or $2,100 for families
- Both you and your employer may open your HSA
- Both you and your employer may contribute to your HSA
- HSA balances can roll over from one year to the next
Employers replacing benefits by offering high deductible insurance plans
Medical insurance is becoming too expensive for many businesses, but rather than drop coverage altogether, some, especially smaller companies, are reaching a compromise by reducing their financial burden and offering high deductible plans instead (The Tennessean, Feb 20, 2008). This puts the emphasis back on the employee as to how they fund their and their families' healthcare. This is where HSAs play a role in that the individual or family can choose how to supplement their existing insurance package.
- Advantages of high deductible plans with HSAs: For people in generally good health they may actually be significantly cheaper than regular insurance.
- Disadvantages of high deductible plans with HSAs: Employees with pre-existing conditions bear a greater brunt of insurance costs, or choose not to enroll and run the risk of being uninsured.
So there you have it. You are now a graduate of HSA 101. Congratulations!
More on Tennessee Health Insurance.