HSA ACCOUNTS

 

The idea of a  Health Savings Account (HSA) qualified health plan is very simple. You generally have a higher deductible and you pay for everything (except preventive care in some plans) up to that deductible, then all medical costs are covered at 100%. The premium for this type of insurance is generally lower than on a "traditional" co-pay plan. You then put the difference in premium into your savings account.

There are penalties for withdrawing HSA funds that are to be used for other than qualified medical expenses. This penalty currently is 10% but will increase to 20% in 2011 as a result of healthcare reform. On top of the penalty you'll also pay regular income tax.

 

STATEMENT - why should I get an HSA qualified health plan if it doesn't have co-pays for the doctor visits?

ANSWER -  People are used to doctor co-pays and low deductibles so many people don't want to even consider an HSA plan.

 The two main advantages that HSA plans have are lower total out-of-pocket expenses (especially with major medical bills) and tax advantages. We'll discuss the tax advantages first.

 You can open a savings account that operates much like an IRA account. You put money into this account pre-tax and qualified withdrawals are tax free. For example, you put $75 per month ($900 per year) into this account and are in the 28% tax bracket. You will then get an "above the line" tax credit on your federal taxes which saves you $252. Most states also have a state tax credit. If you pay for your doctor visit out of this account the money comes out tax free. These plans allow you to keep some of your premium dollar in your savings account instead of the insurance company's account, and it is your money that will accumulate year after year if you don't use it.

 For further information please follow this link to the U.S. Treasury department.