Signed into law and made available January 1st 2004, health savings accounts (HSAs) have joined the lineup of new ways to set aside money for medical costs. It is the newest, most innovative approach to affordable health insurance for all Americans.
An HSA medical plan is made up of 2 components:
It’s part savings, part insurance.
- An individual Tax-exempt savings account (HSA)
- A qualified high deductible health insurance plan
The idea is that the money you save on your premium, plus any additional funds you want to add in, gets routed to the savings account portion of the plan.
The HSA
The tax-exempt savings account component (the HSA) works as follows: Money put into the HSA portion of the plan can be used throughout the year to pay for routine medical expenses or; when left in the account to accumulate, used at a later date for medical expenses or saved until retirement.
Covered medical expenses are defined by the IRS, and are much broader than most insurance carriers (i.e. coverage for dental, vision, acupuncture, and so on). In addition, medical expenses paid under the HSA portion of the plan offer you total freedom of choice. That’s right, no provider Network requirements.
Best of all, individuals can deduct dollars contributed to the HSA account from their gross income, resulting in tax-free medical dollars. The HSA account is very similar to an IRA account; however HSA monies can be freely distributed on a tax-free basis to pay for qualified medical expenses year after year. Upon retirement age, the HSA account balance is treated as an IRA and the funds are distributed to you accordingly.
The Medical Insurance Plan
- Medical insurance premiums are lower than other fully-insured plans with co-pays.
- In concept, the dollars used to fund the Health Savings Account come from the premium dollars not being spent on a traditional medical plan to subsidize your co-pays and low deductibles.
By empowering individuals to self-direct their health care needs and expenditures, the new HSA law openly involves the consumer and creates a significant financial incentive to check bills, compare costs, and evaluate the urgency and frequency of need.
The HSA benefit; You get to keep the money left over in your HSA account because you efficiently managed your healthcare expenses.
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