A Health Savings Account health insurance plan is different from traditional health insurance; it is a savings account that can be used to pay health care expenses. HSAs allow you to pay health expenses with tax-free dollars. You can also save for future qualified medical expenses as well as save for health expenses after you retire. Health Savings Accounts were authorized by Congress and began January 1, 2004.
You must have a High Deductible Health Plan (HDHP) to open a HSA. An HDHP will usually costs less than traditional health care coverage. The money that you save on insurance can be put into your Health Savings Account.
You own and you control the money in your HSA. You decide how to spend the money -not an insurance company. You also decide what to invest the money in.
What Is a "High Deductible Health Plan" (HDHP)?
Sometimes referred to as a "catastrophic" health insurance plan, an HDHP is an inexpensive health insurance plan that has a relatively high annual deductible. After the annual deductible is met, insurance benefits begin. The money in your HSA is used to pay for expenses your plan does not cover.
How much does an HSA cost?
An HSA is not a product you buy; it is a savings account that allows you to accumulate money on a tax deferred basis. When you spend the health savings account money on qualified medical expenses, it becomes tax free.
How much may be contributed to an HSA?
The guidelines for maximums for 2010 the maximums will be $3,050 for self-only coverage and $6,150 for family coverage. Individuals who are age 55 and over but under age 65 may make additional catch-up contributions ($1,000 for 2010). Contribution guidelines will be adjusted annually to account for CPI fluctuations.
What Happens to My HSA When I Die?
If you are married, your spouse becomes the owner of the HSA. Its tax treatment is unchanged. If you are not married, the account loses its tax favored treatment upon your death. The account will pass to your beneficiary or become part of your estate (and be subject to any applicable taxes).
Tax Savings - An HSA provides you triple tax savings!
- Tax deductions for contributions to your account;
- Tax-free investment earnings and,
- Tax-free withdrawals for qualified medical expenses.
Difference between HSA, HRA (Health Reimbursement Arrangement), and FSA (Flexible Spending Account)
You are 100% vested immediately in the HSA. It is your money. Money carries over from one year to the next. This is just the opposite of FSA (Flexible Spending Account) money where it is "Use it or Lose it." The unused HSA balance accumulates over time and grows based on the investment vehicle. Although HRA funds can accumulate from one year to the next, the money belongs to the company, not you. You can not take the money with you if you leave the company.
Who can contribute to an HSA?
Anyone can contribute to another person's Health Savings Account. The tax benefit from such a contribution is gained by the person receiving the contribution, not to the person making the contribution.
Who can establish a HSA?
An adult can open a HSA if they:
- Are insured by a High Deductible Health Plan (HDHP).
- Have no other first-dollar medical coverage (other types of insurance like specific injury insurance or accident, disability, dental care, vision care, or long term care insurance are permitted).
- Are not enrolled in Medicare.
- Cannot be claimed as a dependent on someone else's tax return.
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