What Is A Health Savings Account (HSA)?
A Health Savings Account is an alternative to traditional health insurance; it is a savings product that offers a different way for consumers to pay for their health care. HSAs 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 be covered by a High Deductible Health Plan (HDHP) to be able to take advantage of HSAs. An HDHP generally costs less than what traditional health care coverage costs, so the money that you save on insurance can therefore be put into the Health Savings Account. You own and you control the money in your HSA. Decisions on how to spend the money are made by you without relying on a third party or a health insurer. You will also decide what types of investments to make with the money in the account in order to make it grow. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 added section 223 to the Internal Revenue Code to permit eligible individuals to establish health savings accounts (HSAs) beginning January 1, 2004. An HSA allows individuals to pay for eligible health expenses and save for future qualified medical and retiree health expenses on a tax-free basis. An HSA is similar to an Individual Retirement Account ("IRA"). Like an IRA, an HSA is established for the benefit of an individual, is owned by that individual, and is portable. Thus, if the individual is an employee who changes employers or leaves employment, the HSA stays with the individual. However, an IRA cannot be used as an HSA nor can you combine an IRA and an HSA in a single account.


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What Is The History Behind HSA's?
HSAs began as a pilot program in 1996. The early versions went by the names Medical Savings Accounts or Archer Savings Accounts. Approximately 1.5 million Americans took part in this program. By 2001, it proved to be a success, and Congress decided to open up the program further. Beginning on January 1, 2004, individuals under the age of 65 became eligible to contribute to an HSA if they have a qualified health plan.


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Is There A “Use It Or Lose It” Provision With An HSA?
Amounts contributed to an HSA belong to individuals and are completely portable. Every year the money not spent stays in the account and gains interest tax-free, just like an IRA. Unused amounts remain available for later years (unlike amounts in Flexible Spending Arrangements that are forfeited if not used by the end of the year).


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Who Is Eligible To Open An HSA?
To be eligible for an HSA, you must: (1) Be covered by a high deductible health plan (HDHP) (2) Not be covered by other health insurance, whether as an individual, spouse, or dependent (this restriction does not apply to insurance for specified illness or disease or accident, disability, dental care, vision care, long-term care or hospitalization insurance). (3) You cannot be enrolled in Medicare or Medicaid, nor can you be claimed as a dependent on someone else's tax retun.


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What Is A High Deductible Health Plan?
A high deductible health plan meets the following criteria: (1) For self-only policies, a qualified health plan must have a minimum deductible of $1,150 with a $5,800 cap on out-of-pocket expenses. (2) For family policies, a qualified health plan must have a minimum deductible of $2,300 with a $11,600 cap on out-of-pocket expenses. Out-of-pocket expenses include deductibles, co-payments, and other amounts the participant must pay for covered benefits, but do not include premiums. High deductible health plans can have first dollar coverage (no deductible) for preventive care and higher out-of-pocket expenses (copays & coinsurance) for non-network services. In order to create an HSA, you need to own an insurance plan that has a deductible that is considered high. Many people already own a plan that qualifies or will do so in the near future due to the lower premiums that such plans offer. The dollar amounts described above are subject to annual cost of living adjustments beyond 2005. You must have an HDHP if you want to open an HSA. Sometimes referred to as a “catastrophic” health insurance plan, an HDHP is an inexpensive health insurance plan that generally doesn’t pay for the first several thousand dollars of health care expenses (i.e., your “deductible”) but will generally cover you after that . Of course, your HSA is available to help you pay for the expenses your plan does not cover. For 2009, in order to qualify to open an HSA, your HDHP minimum deductible must be at least $1,150 (self-only coverage) or $2,300 (family coverage). The annual out-of-pocket (including deductibles and co-pays) for 2009 cannot exceed $5,800 (self-only coverage) or $11,600 (family coverage). HDHPs can have first dollar coverage (no deductible) for preventive care and apply higher out-of-pocket limits (and co pays & coinsurance) for non-network services.

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