What is an HSA and what’s in it for you?

On December 8, 2003, Congress created the biggest change in health and retirement care since Social Security and Medicare: the Health Savings Account. The HSA program gives every American access to a tax sheltered account to cover medical expenses and premiums while on COBRA or unemployment.  HSAs also allow you to save hundreds of thousands of dollars, tax free, for future medical expenses or retirement.

HSAs offer a mechanism for those who want more control over their health care expenses.  As a tax policy, HSAs are effective in moving people towards a save now, spend later mentality for health care. An HSA, allows you to pay for current health expenses—and save for future qualified medical and retiree health expenses—all on a tax-free basis.

To open an HSA, you must be covered by a High Deductible Health Plan (HDHP).  Once you’re enrolled, you own and have complete control over the money in your HSA. You make the decisions on how you want it spent, not a third party or a health insurer. You also get to decide how and where you want to invest this money to grow your account.

Features of an HSA include:

  • Your own HSA contributions are tax-deductible.
  • Interest earned on your account is tax-free.
  • Withdrawals for qualified medical expenses are tax-free.  Click here for a list of qualified medical expenses.
  • Unused funds and interest are carried over, without limit, from year to year.
  • You own the HSA and it is yours to keep—even when you change plans or retire.
  • Your HSA is administered by a trustee/custodian.

HSAs and HDHPs
An HDHP provides traditional medical coverage and an HSA is a tax-free way to build savings for your future medical expenses. Together, they give you greater flexibility and control over how you use your health care benefits.

The HDHP features higher annual deductibles (a minimum of $1,200 for Self and $2,400 for Self and Family) than traditional health plans.  In addition, annual out- pocket expenses under the plan (including deductibles and co-insurance) cannot exceed $5,950 Self and $11,900 for Self and Family. Depending on your HDHP, you may have the choice of using in-network or out-of-network providers. Usually, using in-network providers will save you money. Except for preventive care, you must meet the annual deductible before the plan pays benefits. Preventive care services are generally paid either before you meet your deductible, after you meet a smaller deductible or on a co-payment basis. When you enroll in an HDHP, the health plan determines if you are eligible for an HSA.

In general, the deductible must apply to all medical expenses (including prescriptions) covered by the plan.

However, plans can pay for “preventive care” services on a first-dollar basis (with or without a co-pay).

“Preventive care” can include routine pre-natal and well-child care, child and adult immunizations, annual physicals, mammograms, pap smears, etc.

HSA Contributions

You can make a contribution to your HSA each year that you are eligible. You can contribute up to the amount of your HDHP deductible for tax deduction purposes for 2010:

  • $3,050 — Self-only coverage
  • $6,150* — Family coverage

Individuals age 55 and older can also make additional “catch-up” contributions. The maximum annual catch up contribution is as follows: 2009 and after – $1,000

√  Examples of HSA Plan Comparison with Traditional Plans (below)

√  To review supplemental products that works with Health Savings Accounts. Click here to view Supplemental Products.

√  For other support services to work with your Health Savings Account. View our Health Resources Mall.

Examples of HSA Plans vs Traditional Plans

HSAs BENEFIT FAMILY Comparison

For families who want affordable health coverage that also creates a financial asset for the future, HSAs are an excellent choice.

The following chart demonstrates how an HSA could benefit your family:

HSA Comparison Table – Family Coverage 2010

Typical Plan HSA Plan
Family deductible:

$2,500
Coinsurance: 80%/20%
(doctor office co-pay)

 Family deductible maximum:

$5,200
Coinsurance: 100%
Premium paid $5,820 $4,908
Share of medical care expenses ($1,500 claim) + $6,050
$2,500 for deductible,
$3,000 for coinsurance,
$550 for dental/eyewear		 + $5,750
$5,200 for deductible,
$550 for dental/eyewear
All paid from HSA account
Expenses subtotal = $11,870 = $8,150
Tax savings on HSA deposits $0 - $1,722
($5,950 HSA deposit x 28%)
Net expenses $11,870 $8,992
Total net savings with HSA Plan = $2,878

Disclaimer: This chart is for comparison purposes only.

*Any reference to taxation should not be considered tax advice. Please consult a qualified tax professional for tax advice.*

For More Information about Health Savings Accounts go to:  www.hsainsights.com.

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