|
HEALTH SAVINGS ACCOUNTS
On January 1, 2004, Congress enacted into law Health Savings Accounts. Health Savings Accounts are revolutionizing health insurance as we have traditionally known it. A Health Savings Account (HSA) is a tax-favored savings account that you can establish through any number of financial institutions. The money that you deposit in your HSA can be used to pay for virtually any expenses that you pay out of your pocket for your medical care, including office visits, prescription drugs, etc. In 2010, an individual can contribute up to $3,050 per year to an HSA, and a family can contribute up to $6,150 per year. Those age 55 and over can contribute an additional $1000 per year. Those covered by Medicare cannot contribute to an HSA.
Here is how an HSA works: An individual, family or business first applies for a high deductible health plan (HDHP). An HDHP is a PPO plan (offered by most health insurance companies) that will typically save you between 30-80% from what you would pay for a traditional PPO or HMO health plan. Once you are covered by an HDHP, you then establish your HSA. You can do this with any number of financial institutions. The amount that you deposit into your HSA is deductible from your federal income taxes, and compounds tax-free, as long as you use the funds for any qualified medical expense. Whenever you incur any type of medically-related expense, your HSA is debited, and this debited amount applies to your health plan’s deductible. What’s more, dozens of expenses not covered by your health plan—like lasik surgery, orthodontia, and over-the-counter medications—can also be paid for with your HSA dollars. At the end of the year, any money that is left in your HSA automatically rolls over into the new year, and continues to compound tax-free. In other words, the money in your HSA that you do not use, you keep. You can use money in your HSA to pay for non-medically related expenses also (example: buy a car), but if you do so, you will be taxed at ordinary income tax rates and, if you are under age 65, there is a 10% penalty. After age 65, there is no longer a penalty if you use your HSA money for non-medically related expenses. You can select from any number of investment vehicles for your HSA, such as money market accounts, mutual funds, stocks and bonds.
Bottom line: With an HDHP, not only will you pay a significantly lower premium than what you pay for a traditional health plan, but you will also spend significantly less out of your pocket for all of your medical and hospital expenses. HSA’s, in conjunction with HDHP’s give you, by far, the best value for your health insurance dollar.
|
