What are Health Savings Accounts?

Like its precursor MSA, or Medical Savings Account, the HSA is a two-component health plan consisting of a tax-deductible, high deductible catastrophic health insurance plan, and a tax-free claims expense reimbursement and tax-deferred savings plan.

Reimbursements from the savings plan account, for those expenses deemed eligible (as defined under a more liberal and far broader federal definition) are received 100% tax free, while all other withdrawals are taxable as ordinary income with an added penalty when taken prior to age of 65. Simply stated, the HSA is just the permanent expansion of the former MSA, but with several very meaningful enhancements.

HSA NEWS: Treasury, IRS Issue 2010 Indexed Amounts for Health Savings Accounts

Why an HSA, or Health Savings Account? The primary reason is affordability, and the secondary open choice in doctors and hospitals. Many vendors of the precursor MSA required insureds to use only network-listed doctors and hospitals, making them much like the less desirable and restrictive HMO (Health Maintenance Organizations with their Staff Models or IPAs – Independent Physician Associations), or the slightly less restrictive PPO (Preferred Provider Organizations). The reason they did so is because such networks provide Insurers with pricing discounts that “may” be passed onto the consumer, either by increased benefits, lower policy premiums, or both.

• You save money on personal taxes since annual contributions to the Savings Account component of an HSA are tax-deductible.
• You save money on current and future day-to-day medical costs by using tax-free dollars to meet those expenses, and an insurance company to pay the catastrophic bills
• You also save money through lower rates on your health insurance since an HSA allows you to purchase the health plan component of the plan using a lower cost, high deductible, while protecting your higher deductible exposure through the tax-deductible Savings Account component of the HSA
• Your unused, Savings Account funds, grow tax-deferred - what you don't spend you keep year after year (a lot like an Individual Retirement Account, except that you use it to pay for medical expenses).

• You must be or get covered by a qualified High Deductible Health Plan (HDHP) - the Maximum Deductible in 2006 is: Family = $5,450 / Single = $2,700.
• You must not be covered by other health insurance (exceptions: vision, dental, long term care, disability, life and accident insurance are okay)
• You must not be enrolled in Medicare
• You must not be claimed as a dependent on another's tax return