Health Savings Accounts

Health Savings Accounts (HSAs) are a type of savings account that accumulates funds for healthcare expenses when they are needed. It has a tax advantage in that no federal taxes are deducted when an employer deducts them from an employee’s pay to deposit in the HSA. Savings that are not used in a calendar year roll over to the next year, so the owner does not lose the money if it is not used. If the funds are withdrawn for another reason, the owner must pay a penalty for the withdrawal. When used for healthcare, there is no federal tax that must be paid. It was once allowable to use HSA funds for over the counter medical supplies at one point, but this is no longer the case. At this time, these supplies are paid only with a doctor’s prescription.

HSAs originated as a law signed by President George W. Bush in 2003 as part of the Medicare Prescription Drug, Improvement, and Modernization Act. Although up to 8 million Americans are covered by HSA plans, many millions more are not taking advantage of this opportunity. The HSA concept is controversial because opponents of the plan say that healthy people will leave their insurance plans while those with health problems will not start a HSA. They also say that medical expenses should be tax deductible for everyone, not only for those with an HSA. Those in favor of the program believe that it will improve healthcare and decrease the cost of care. They also like the fact that a HSA allows the owner to share in the responsibility for their healthcare, rather than having a health insurance company determine how much should be spent on a particular illness.

There are limits as to how much can be contributed to a HSA by an individual or family. The amounts usually go up very slowly each year, and sometimes the limit is increased by only $50. There is also a Catch-Up Contribution clause for individuals who are aged 55 or older. They may add an additional amount of money to their account each year. The government limits how much money can be placed into the fund since these funds are not taxed by the federal government. When businesses offer the HSA plan to their employees, they deduct the designated amount of savings that the employee has requested and deposit it into the Health Savings Account. This plan is not mandatory, so if an employee does not want to begin an account, there is no obligation to do so.

These special accounts were created to help those who had high deductibles on their medical insurance policies to have the funds available to pay the deductible in case of illness or injury. For example, someone who has a heart attack or develops cancer may have health insurance with a deductible of $1,000 or $5,000. This amount will not be paid by the insurance company, but is a responsibility of the owner of the policy. Many people do not have savings large enough to cover these deductibles. Americans who have high deductible healthcare plans usually qualify to begin an HSA. Even those who are self-employed may open an account. Employers may offer a HSA if the health insurance that they offer their employees has a high premium.

Most large banks offer HSA accounts to their customers. One of these is Bank of America, a very large national banking chain. An Individual Health Savings Account can only be opened if an individual has an eligible health insurance plan. It cannot be used as an alternative tax sheltered savings plan. Once someone has $1,000 in their HSA, they are eligible to begin investing their savings into mutual funds where they may earn increases when there is an increase in the financial stock market.

For the most part, a HSA is a good idea for those who want to have a savings account that is not taxed. It is important to know that some banks charge yearly fees, so it is best to research several banks before opening one of these savings plans.