Health Savings AccountsRising health care costs are squeezing employers bottom-lines. Companies are fighting back by either reducing health care coverage, passing along the higher costs to employees or in some extreme cases, eliminating the benefit altogether. "
Health Savings Accounts (HSA), in conjunction with a qualifying High-Deductible Health Plan (HDHP) may help to soften the financial blow for individuals facing high unreimbursed medical expenses," states Maria Foxhall, Vice President and Sales Executive for Well Fargo Health Benefit Services. "Managing an HSA requires a little more work, but the financial savings and flexibility can be significant."
Contributions to HSAs must be made either in cash or payroll deduction if made through an employer. The annual contribution limits for 2008 are $2,900 for individuals and 5,800 for family coverage. For individuals between the ages of 59 and 64, there is an additional "catch up" provision of $900 per year. The contribution limits are annually indexed for inflation. Besides insurance carriers, many banks, credit unions and other financial institutions are custodians of HSA accounts. FULL TEXT
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Rising health care costs are squeezing employers bottom-lines. Companies are fighting back by either reducing health care coverage, passing along the higher costs to employees or in some extreme cases, eliminating the benefit altogether. "
Health Savings Accounts (HSA), in conjunction with a qualifying High-Deductible Health Plan (HDHP) may help to soften the financial blow for individuals facing high unreimbursed medical expenses," states Maria Foxhall, Vice President and Sales Executive for Well Fargo Health Benefit Services. "Managing an HSA requires a little more work, but the financial savings and flexibility can be significant."
What is an HSA?
Health Savings Accounts are relatively new, being signed into law in December, 2003. To better understand HSAs, think of them as tax-advantaged medical savings accounts that have features somewhat similar to traditional IRA retirement accounts.
- Contributions to an HSA are considered "pre-tax" and may reduce taxable income.
- Funds in the account grow tax free and can be invested in a variety of mediums, including CD's and mutual funds.
- Distributions from the account are tax free if used for qualified medical expenses.
- The account owner determines when the funds are to be used and the account carryovers from year to year.
- HSA accounts are portable across employers and insurance carriers.
Why Consider an HSA?HSAs appear to work well for two groups of consumers. Individuals employed at companies that either have no health care coverage or medical plans that are considered high-deductible health plans. A second group that may find an HSA to their advantage are the self employed or small business owners.
Because of the high cost of traditional health care insurance, both of the above groups may find that the flexibility and tax savings resulting from an HSA, in conjunction with the lower cost of a high-deductible health insurance may result in significant savings. HSAs are not available to either individuals that are covered by Medicare, have other first-dollar medical coverage or can be claimed as a dependent on another person's tax return.
Setting up an HSA
To setup an HSA, a person must have a qualifying High Deductible Health Plan. The deductible limits must be in a range from $1,100 - $5,600 for individuals and $2,200 - $11,200 for family coverage. Most insurance companies that offer HDHPs also offer HSAs, however there is no requirement that the two are with the same company.
Contributions to HSAs must be made either in cash or payroll deduction if made through an employer. The annual contribution limits for 2008 are $2,900 for individuals and 5,800 for family coverage. For individuals between the ages of 59 and 64, there is an additional "catch up" provision of $900 per year. The contribution limits are annually indexed for inflation. Besides insurance carriers, many banks, credit unions and other financial institutions are custodians of HSA accounts.
Two websites that may be helpful and provide competitive information on HSAs are
http://www.hsainsider.com/ and
http://www.ehelathinsurance.com/. Additionally, the U.S. Treasury Department has an informative website at
www.treas.gov/office/publicaffairs/hsa/.
Your Financial Plan The combination of an HSA and high deductible health plan may provide an opportunity for affordable health care. Additionally, this combination may offer protection from catastrophic financial damage resulting from a serious illness within a family. Work with your health insurance advisor to determine if an HSA fits into your family's financial plans.
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