Health Savings Accounts (HSAs)

The HSA (Health Savings Account) was created by the Medicare Prescription Drug, Improvement and Modernization Act of 2003 and signed into law by President Bush in late 2003. This plan allows consumers to open a savings account that will be used to pay for medical care, so it is similar to a SDHP in that you are held responsible for your own coverage.

In order to use a Health Savings Account, you are required to have a “high deductible health plan” because the HSA doesn't cover hospitalization or emergency care. Instead, its focus is on preventive care. When a catastrophic event occurs, coverage is drawn from your HDHP, which can be any kind of plan that you choose, including an HMO, PPO or indemnity plan.

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HSA Plan Details

A Health Savings Account has a couple of benefits that other plans don't offer. It is transportable, so you can continue to carry the same coverage even if you change employers. In addition, whatever amount remains in your account at the end of the year can be rolled-over into the next year. For example, if you are placing $2,500 a year into an HSA and the first year you only use $1,000, the remaining $1,500 stays in the account, to be added to the regular $2,500. Your total is then $4,000 that you can use for the next year's medical costs.

Because the HSA is a personalized plan, you can choose both your HDHP plan and how much to contribute to it and your savings account. The minimum deductible for a high deductible health plan is $1,050 for an individual and $2,100 for a family. The money in the Health Savings Account can usually pay some of this deductible, as long as the medical care is covered by the HSA. Since families can contribute up $5,150 per year, a Health Savings Account can cover routine medical coverage quite handily.

Families who need routine coverage and individuals who don't expect to have much health care expense would benefit from an HSA. As it is not a health plan but simply a savings account that has been modified to work as one, you are free to find ways to invest the money in your HSA, whether it goes toward health care or something else. However, only monies used for covered medical care is tax-free. What is spent beyond that is subject to a 10% tax penalty, just like an IRA. Routine Dental and vision care qualifies as a covered expense. You can now sign up for a HSA just about anywhere, including insurance companies, credit unions and banks.

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