Health savings account
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The health savings account (HSA) is a tax advantaged savings plan (a financial account with various restrictions) available to taxpayers in the United States to cover current and future medical expenses. It allows money to be put in before tax is paid on it and then to withdraw the money tax free for qualified medical expenses.
The health savings account is the new name for the medical savings account (MSA) plans that were previously offered. The new plan decreased deductibles and extended the accounts to more people. The changes were made in legislation signed by George W. Bush on December 8, 2003.
A person must be covered by a High Deductible Health Plan (HDHP) to be eligible for an HSA. The premium for a HDHP generally is less than the premium for traditional health care coverage. Money saved on insurance premiums might be put into the Health Savings Account, or employed for other purposes.
HSAs differ in several ways from MSAs. Perhaps their most significant difference is the ability of employers of all sizes to employ HDHPs and HSAs as health benefits options for employees. MSAs were limited to employers who employed 50 or fewer people. That change is important, because employers are the sponsor of health benefits for most people in the US.
Another change from the old MSA is the lowering of the minimum deductible for the necessary HDHP to qualify for the plan, to $1,000 for a single person and $2,000 for a family.
Other differences, concerning who may make contributions to HSAs in addition to the accountholder, and the status of HSAs vis a vis employee benefit plan law & regulations, are significant, but not yet well or widely understood.
Proponents say HSAs give individuals an incentive to pay more attention to what they are charged for health care goods and services, since they pay the first few thousand dollars of cost out of pocket. Critics say that is a bad thing, since people facing the prospect of paying the entire cost of a visit to a doctor's office, or a minor but needed surgery, may skimp on, or forego altogether, obtaining needed care for diseases or injuries before the condition becomes more serious (and frequently more costly to treat).
Some health care analysts also criticize HSAs for being much more valuable to upper income individuals than lower income individuals. If a person in the 30% tax bracket put $5,000 into an HSA, the government would effectively 'contribute' $1,500 (30% of $5,000). If a person in the 10% tax bracket were able to put $5,000 into an HSA, the government would only be contributing $500. The tax deduction cannot be used against payroll taxes.
Most people who use HSAs would already have health insurance.
See also
- Consumer Directed (http://www.hsadecisions.org/glossary/term.asp?portlet=1&id=350&returnURL=default%2Easp)
- Flexible spending account
Those saying that the tax benefits are for the rich fail to see the total benefits of HSA contributions. When you pay for health costs with your HSA account, you are now using before tax dollars and don't have to be concerned about exceeding 7 1/2% of your adjusted gross income to be able to deduct expenses. In addition, the maximun out of pocket for catastrophic medical expenses is generally less with a High Deductible Health Plan when you compare it to the traditional health plan.
The public is still trying to understnd that any funds not used in your HSA account carry over and remain in the account, unlike the old flexible spending where you lost any money remaining at the end of the year. Also, any funds that build up in the account can be invested just like money in an IRA.
External links
- Health Insurance for Health Savings Accounts (http://www.health--savings--accounts.com/)
- U.S. Treasury site on HSAs (http://www.treas.gov/offices/public-affairs/hsa/)
- HSADecisions Health Savings Account Official Web Portal (http://www.hsadecisions.org)
- MSA info site that has information on the new HSA (http://www.msainfo.net/)
- HSA Report (http://www.hsareport.com) Current & archived HSA news capsules/links
- "Health savings can be tax shelter" (http://www.usatoday.com/money/perfi/taxes/2003-12-04-mym_x.htm) by Thomas A. Fogarty for USA Today, December 4, 2003