Basic HSA Explanation

Health Savings Accounts (HSAs) are designed to help individuals and families on high deductible health plans (HDHPs) save money, tax-free, for qualified medical expenses.

High Deductible Health Plans

HDHPs have higher minimum annual deductibles than full-coverage plans and a maximum for out-of-pocket expenses. HDHPs typically have lower premiums than other plans.

Eligibility

HSA owners must be enrolled in an HDHP. They cannot be covered by other health insurance (with certain exceptions), enrolled in Medicare, or claimed as a dependent on anyone's tax return.

Uses

HSA withdrawals may be used for medications, doctor visits, tests, hospital stays and other medical expenses.

Financial Advantages

HSA contributions and withdrawals for qualified expenses are tax-free. For the 2010 tax year, a limit of $3,050 may be contributed to an individual HSA, or $6,150 to a family HSA.

Financial Disadvantages

In 2010, the minimum annual deductible for HDHPs is $1,200 for an individual and $2,400 for a family, though many plans have a higher deductible (and consequently a lower premium). HDHPs don't pay benefits, except for preventive care, until the deductible amount is paid. For some individuals, a full-coverage health plan is a better choice.

Availability

HSAs are available at many major and local investment firms, banks and credit unions, with proof of eligibility.

References

• IRS Publication 969 (2009): Health Savings Accounts and Other Tax-Favored Health Plans
• IRS Publication 502 (2009): Medical and Dental Expenses
• The Financial Aspects of Health: Health Savings Accounts

Resources

• US Treasury: Health Savings Accounts