Texas Insurance Shoppers

Health Savings Accounts 101

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Health Savings Accounts (HSA) became available on January 1, 2004, replacing the MSA (Medical Savings Account) that had previously been available.  Insurance Shoppers’ clients in Texas found the new HSA qualified plans and HSAs themselves to be a popular option, and interest has continued to grow in the years since.  HSAs are similar to the old MSAs, but they don’t have as many restrictions, and are a better fit for far more people. 

 

So What Exactly is a Health Savings Account?

An HSA is a pre-tax savings account, and the money in it can be withdrawn (still tax free) to pay for qualified medical expenses.  In order to set up an HSA, you must first enroll in a high deductible health insurance plan (HDHP).  Then you can open the tax-deductible health savings account, and contribute money to it in accordance with IRS guidelines (the IRS sets a maximum that a single person or family can contribute to an HSA in any given year).  Any money you contribute to the HSA is tax deductible, along with any earnings the account accrues.  You can withdraw money from the HSA to pay for qualified medical expenses, without incurring any taxes or penalties on the money.  Money left in the account at the end of the year simply rolls over to the next year – there is no "use it or lose it" deterrent with HSAs.

 

How is  an HSA Different From My Old MSA?

HSAs retained the benefits of MSAs, but eliminated many of the restrictions and added several improvements.  HSAs provide these benefits that were lacking with the older MSAs:

• Everyone who is enrolled in a qualified high deductible health insurance plan is eligible to set up an HSA
• An HSA – and the money in it -is yours to keep.  Even if you switch to a new insurance carrier or decide to go back to a traditional health insurance policy (although you cannot continue to contribute to the HSA without an active HDHP)
• IRS limits on contribution amounts are higher for HSAs
• There are more deductible options to choose from with the qualified HDHPs
• Employers can contribute money to employees’ HSAs.  The HSA can be funded by individual account holders, their employers, or a combination of the two.

 

There are 2 parts to HSA Health Insurance plans…

Step 1: The Qualified High Deductible Health Insurance Policy (HDHP) 
In 2008, qualified high deductible health plans must have a deductible of at least $1100 for individuals and $2200 for a family.  The maximum out-of-pocket limit on an HDHP cannot exceed $5600 for an individual and $11200 for a family.  There are lots of policy options that qualify as HDHPs, and the premiums tend to be lower than traditional policies.  Anyone can apply for an HDHP, and there is no requirement to set up an HSA afterwards – if you want to just have the health insurance policy, you can do so.

  
Step 2: The Pre-Tax Health Savings Account
Once you have the HDHP in place, you are eligible to set up a health savings account.  You can deduct the money you contribute to the account from your gross income at tax time.  Any time you need to meet your deductible or pay a medical expense that is not covered by your health insurance policy, you can withdraw – tax free – money from the HSA.  If you leave your job, any money in your HSA will remain there and can still be used for future medical expenses, even if your employer contributed the money to your HSA.  You can use the money in your HSA to pay for anything that the IRS considers a legitimate HSA health care expense.  You will find the list to be very comprehensive, including dental, vision, and many alternative treatments that are rarely covered by health insurance policies.

 

Don’t wait!

Just as with an IRA, the sooner you set up an HSA, the better off you’ll be.  Remember, any money in the HSA that you don’t use for medical expenses will roll over from one year to the next, and early starters can accumulate hundreds of thousands of dollars in an HSA by the time they retire.  By switching to an HDHP, and putting the money you save in premiums into an HSA, you’re keeping money that you would have spent on premiums and gaining much more control over how it is spent.  If you need it for medical expenses, it will be there for you.  If not – it will still be there when you retire.  At age 65, you can start withdrawing the money for any purpose you like, although it will be taxed (similar to traditional IRA withdrawls).

 

Let Us Help You Get an HDHP/HSA in Place NOW

If you have questions about HSAs or HDHPs, or if you’d like to see plan comparisons or apply for an HDHP, please contact us today.  We can show you how an HDHP/HSA combination can likely save you money and allow you to start saving pre-tax money to cover future medical expenses.  There’s never any charge for our services, and we’d be happy to answer any questions you have.  So if you’re interested in HSAs, don’t put it off any longer – call or email us and we’ll help you get started today.

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*See IRS Publication 502 for a list of qualifying HSA expenses. All terms and conditions of coverage, including benefits and exclusions, are contained in the policy certificate, which shall control in the event of a conflict with this overview. Insurance Shoppers, Inc. is not engaged in providing tax, investment or legal advice. Federal and state regulations are subject to change. If tax, investment or legal advice is required, seek the services of a licensed professional.

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