Health Savings Accounts

HSAs were created by the Medicare bill signed by President Bush on December 8, 2003. They are an alternative to traditional health insurance and enable you to pay for current health expenses and save for future qualified medical and retiree health expenses on a tax-free basis. You must have a High Deductible Health Plan (HDHP, a.k.a. "catastrophic insurance") if you wish to open a HSA. You own and you control the money in your HSA and decisions on how to spend the money are made by you without relying on a third party or a health insurer.

 

You can sign up for HSAs directly with banks, credit unions, insurance companies and other approved companies. Your employer may also set up a plan for you as well.

 

An HSA is not something you purchase and costs nothing. An HSA is a savings account into which you can deposit money on a tax-preferred basis. The only thing you need to purchase is a HDHP, an inexpensive plan that will cover you should your medical expenses exceed the funds you have in your HSA.

 

To be eligible for a Health Savings Account, an individual must be covered by a HSA-qualified HDHP and must not be covered by other health insurance that is not catastrophic. Certain types of insurance are not considered “health insurance” (see below) and will not jeopardize your eligibility for an HSA.

 

You are only allowed to have automobile, dental, vision, disability and long-term care insurance at the same time as a HDHP. Wellness programs offered by your employer are also permitted if they do not pay significant medical benefits.

 

HSA funds can pay for any “qualified medical expense,” even if the expense is not covered by your HDHP. For example, many health insurance policys do not cover or only partially cover the cost of acupuncture and osteopathic manual medicine, but HSAs can. If the money from the HSA is used for qualified medical expenses, then the money spent is tax-free.

 

For a partial list of qualified medical expenses please go to www.irs.gov and review publication #502.