Health Savings Accounts - Part 1 - Introduction

This is the first article in a four-part series on Health Savings Accounts.


A Health Savings Account (HSA) is an innovative solution to the rising costs of health insurance. HSAs were signed into law in December of 2003.


An HSA plan has 2 components:


  1. A qualified High Deductible Health Insurance Plan (HDHP)
  2. An Individual, Tax-exempt Health Savings Account (HSA)
A High Deductible Health Plan (HDHP) coupled with a Health Savings Account (HSA) provides traditional medical coverage and a tax-free way of building savings for future medical expenses. The HDHP/HSA gives greater flexibility and discretion over how health care benefits are utilized.


The HSA account can be used to pay for qualified medical expenses and/or provide savings for future medical expenses. Qualified medical expenses are defined by the IRS and include dental care, vision care, and over-the-counter drugs such as aspirin. Individuals can deduct dollars contributed to the HSA account from their gross income, resulting in tax-free medical dollars. The account is similar to an IRA. However, it is only used for qualified medical expenses.


Advantages of HSAs


  • Security - High deductible insurance with anHSA protects against high or unexpected medical bills.
  • Affordability - With an HSA plan, there is often significant reduction of insurance premium because of the higher deductible under the HDHP.
  • Flexibility - Funds in the HSA can be used to pay for current medical expenses or saved for future medical needs.
  • Control - Your employees make the decisions regarding:
    • How much money to put into the HSA
    • When to use the funds for medical expenses
    • What investments to make with their savings
  • Portability - HSAs are completely portable. Employees can keep their HSA even if they:
    • Change jobs
    • Change medical coverage
    • Move to another state
    • Change marital status
  • Ownership - Funds remain in the account from year to year, just like an IRA. There are no "use it or lose it" rules for HSAs.
  • Tax Savings - An HSA provides triple tax savings:
    • Tax deductions when contributions are made to the HSA;
    • Tax-free earnings through investment; and,
    • Tax-free withdrawals for qualified medical expenses.
In our next newsletter, we will discuss HSA eligibility requirements.


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Source: www.a1articles.com