What is a Health Savings Account "HSA"?  An HSA is an tax advantage individual or family savings account used to cover health care expenses in conjunction with a high deductible health insurance plan (HDHP).  Dollars contributed to your savings account are tax-deductible, interest deferred to age 65 and can be withdrawn tax-free and penalty free for qualified expenses under Section 213(D) of the Internal Revenue Code.  

HSAs are similar to IRAs.  Unlike an IRA however, dollars can be withdrawn from your HSA account early prior to age 65 penalty free and tax-free to cover health care costs such as deductibles, prescription drugs, dental care, contacts, lasic eye surgery,  and even Long Term Care insurance premiums.  Think of the HSA as a "Medical IRA". 

Dollars not used for health care expenses can be used to supplement retirement income after age 65 and withdrawn without penalty.  All you pay is ordinary income tax on the amount withdrawn or continue to save dollars for future medical expenses. 

Contributions

2007 Contributions

• Individuals can contribute each year 100% of the maximum contribution $2,850.
• Families can contribute each year 100% of the maximum contribution of $5,650.

2008 Contributions

• Individuals can contribute each year 100% of the maximum contribution $2,900.
• Families can contribute each year 100% of the maximum contribution of $5,800.

2009 Contributions

• Individuals can contribute each year 100% of the maximum contribution $3,000.
• Families can contribute each year 100% of the maximum contribution of $5,950.

For calendar years 2007 an additional $800 catch-up contribution and 2008 an additional $900 catch-up contribution may be made for an account owner who is at least age 55 and less than age 65. The catch-up contribution increases to $1,000 in 2009 and later years. Contributions in excess of the maximum annual contribution are subject to an excise tax. However, the catch-up contributions are not subject to an excise tax.

Benefits of an HSA

Savings
• High Deductible Health Plans typically cost less than a low deductible plan while limiting the overall out-of-pocket exposure. Insure for larger claims while using premium savings, tax-deductible contributions and tax-free withdrawals to pay for  daily health care expenses.
• Contributions are portable. You take the savings with you if changing employment or health insurance carriers.
• You are rewarded by being an informed and cost conscious consumer.
Reduce Taxes
• Contributions are tax-deductible.
• Interest earned is tax-deferred.
• Dollars withdrawn for health care expenses are tax-free.
Build Tax-Favored Savings
• Dollars not spent build year after year, creating a potential retirement income.
• Earn tax-deferred interest or invest in mutual funds for potential higher returns.

Who can qualify?
Everyone (not just self-employed or small businesses) with a qualified high deductible health (HDHP) insurance plan will be eligible for a tax-deductible HSA.

2008 High Deductible Health Plans (HDHP) are qualified Health Insurance plans with a minimum of $1,100 deductible for an individual and a combined minimum $2,200 deductible for a family.  Out-of-pocket expenses not to exceed $5,600 for individuals or combined $11,200 for families. 

2009 High Deductible Health Plans (HDHP) are qualified Health Insurance plans with a minimum of $1,150 deductible for an individual and a combined minimum $2,300 deductible for a family.  Out-of-pocket expenses not to exceed $5,800 for individuals or combined $11,600 for families.

HDHP plans cannot extend first dollar benefits such as Doctor Office Copays or Prescription Drug Copayments.  Some policies do however offer discounted prescription drug programs that still qualify as HDHP. 

Recap of an HSA

An HSA works like an IRA, except that money is used to pay health care costs. Participants enroll in a relatively inexpensive high deductible insurance plan. Then, a tax-deductible savings account may be opened to cover current and future medical expenses. The money deposited, as well as the earnings, is tax-deferred. The money can then be withdrawn to cover qualified medical expenses tax-free. Unused balances roll over from year to year. 

Greater control over your health care dollars-you withdraw your funds when you need them. Withdrawals are tax-free and penalty-free when made for qualified expenses.

Funds for a broader range of health care services - Pay for covered expenses that apply toward your deductible or pay for qualified medical expenses that your health plan doesn’t cover such as; Contact Lenses, Alternative Medicine, Dental and Orthodontic services, long term care insurance.

Tax Advantages - Contributions are tax-deductible, earnings are tax-deferred, and qualified withdrawals are tax-free.

A retirement income supplement - At age 65, accumulated funds can also be withdrawn for non-qualified expenses, or medical expenses not covered by Medicare, subject to income tax.

Remember

Save Premium

Reduce Taxes

Build Tax-Favored Savings