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Is Health Savings Account (HSA) The Answer You Have Been Looking For?

Health Savings Account (HSA) plans are the latest choice of health insurance plans available to individual and employer group consumers. They offer the promise of lower monthly premium costs associated with high deductible health insurance plans, choice of physicians and hospitals, along with the use of a tax free account from which to pay the out of pocket health care expenses that come up throughout the year.

A Growing # of Americans are willing to take health care costs into their own hands.   With Traditional Health Insurance costs that are rising, a "Consumer – Driven Health Care" has a great appeal.

Key Characteristics of Health Savings Accounts

Money contributed to your Health Savings Account and not used is rolled over year to year. Unlike similar plans in the past, which were "use it" or "loose it" plans.

Health Savings Accounts work like an IRA and funds have to be deposited into a special HSA account before April 15th and roll over. Qualified deposits reduce taxable income.   The maximum deposit you can tax deduct each year is the pro-rated DEDUCTIBLE (1/12 for every month you are covered during the year - up to a maximum of $2,650 a year) plus there is a graduated "catch-up" amount beginning at 55 and older starting at $500 per year.

You can use the account funds for medically necessary care and long-term-care insurance-premiums, but not for health care premiums.

Examples of items covered by HSA plans:

• Deductibles, co pays, doctor visits, lab, X-ray, hospital, vision, dental care, Rx, etc.
• Illness related over-the-counter: first aid/cough-cold supplies, etc.

Examples of items NOT covered by HSA plans:

• No cosmetics, hygiene, paper products, special food, clothing, health clubs, etc.
• Herbs, vitamins, weight-loss items, etc. are not covered unless doctor letter to assure they are illness related.

Unspent money can accumulate from year to year!

Premiums are, on average, 30% cheaper that most popular standard-deductible health plans

The Benefits of Health Savings Accounts

Health savings accounts have the potential of being a great choice in at least three particular situations –

• You or you and your family are healthy and will have minimal medical expenses or
• You expect a large but non-chronic medical expense (preferably over a single year).
• A third possibility is that the HSA premium is significantly lower than the non-HSA plans.

Compare an HSA plan with a PPO/HMO/Traditional plan by taking account of five items:

• the deductible
• coinsurance
• maximum out-of-pocket
• monthly premium under each plan
• the HSA contribution.

Your Individual Health Savings Account is funded with "pre-tax" dollars.

What this means to you:

Example - if you earn $42,500 a year and contribute $2,500 to your qualified Health Savings Account (HSA), then your taxable income becomes $40,000.

Another tax advantage for the Self Employed Individual is:

If you have a HSA contribution of $2,500 and you are in a 35% income tax bracket you now have a tax deduction of $875.

Consult your tax advisor - This information is not intended to be a substitute for the advice of a qualified tax professional. If you are considering an HSA, you should consult a qualified tax advisor who can evaluate your particular needs and circumstances.

Do some test calculations using different scenarios. Assume no expenses and then assume a lot of expenses. Assume at sometime in the future an unexpected large medical expense will occur. If you expect a chronic condition to occur, a more comprehensive plan may be much more economical than an HSA plan over the long run since, when the chronic condition occurs the more comprehensive option may not be available to you.

For a more detailed and easy to understand explanation click here: <<HSA BASICS>>

Follow this link to our <<Individual HSA Choices>>