What is an HSA (Health Savings Account)?
Maintaining the proper amount of health insurance in America continues to be a struggle for millions of working families. According to the latest government data, there were nearly 47 million Americans living without any form of health insurance. This number represents nearly 16% of the population with at least 80% being naturalized or native citizens. Since 2000, the number of uninsured Americans has grown by almost nine million.With such daunting facts, there has to be an alternative to traditional health insurance plans. Thankfully, there is the HSA (Health Savings Account). This form of health insurance has enabled millions of American workers to take more control of their health insurance. In fact, many employers have begun to utilize this system in their business, as traditional health insurance plans are simply unaffordable to many businesses.
To qualify for this new health insurance options you must:
- Possess an HSA approved high deductible insurance plan
- Have no other medical coverage with the exception of a long-term health care policy, policies that cover specific health issues, or accidental death and dismemberment insurance
- Not be enrolled in Medicare
- Not be eligible or claimed as a dependent on another person's tax return
The HSA works in conjunction with a high deductible insurance plan. Once, your deductible is reached your plan will cover 100% your costs. However, the deductible required to use an HSA is extremely high. According to the federal government, a high deductible plan is one with a $1,100 deductible for individuals and $2,200 for families. High deductible plans also have limits of $5,500 for individual and $11,000 for families. Each month you deposit money into an interest-bearing savings account referred to as the HSA Then, when you need to pay for your insurance deductible, you withdraw money from your HSA account. The money from the account pays for the deductible, and the insurance company pays for the rest.
Tax incentives
Funds contributed to the HSA are exempt from both federal and state tax, yet continue to gain interest. These funds are always available for medical use including practices like acupuncture as well as a variety of other health care related industries. However, if you withdraw money from this account for non-medical reasons before the age of 65, you have to pay taxes as well as a ten percent penalty. Money taken out after the age of 65 remains tax-free for medical expenses, but is subject to taxes for non-medical expenses.
Unused funds
The HSA does not penalize or deduct any funds not used during the year. The unused money rolls over into the next year and continues to gain interest without tax penalties. As of 2007, individuals can contribute a maximum of $2,850, whereas families can contribute $5,650. Of course, these numbers are sure to increase in the coming years due to inflation.
Employer funding
Another benefit of the HSA is the fact that employers may contribute to your account. The combination of your deposit plus your employer's contribution is still subject to the same limitations as the individual and family are.
Is this plan right for me?
If you qualify and the Health Savings Account interests you, it may be time to set one up. Starting an HSA is not as difficult as you may think. You can start your savings account at your current financial institution or at another similar institution of your choice. Some employers also offer assistance in starting an HSA. For more information regarding the specific tax benefits, as well, as how an HSA affects your taxes, visit http://www.irs.gov/newsroom/article/0,,id=97322,00.html