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Point of View ::
As Americans we like options. When our car needs a cleaning we have the choice of a foam wash complete with chassis cleaning, interior detailing and hand polishing or we can choose to park the car in the driveway and wash it down with the backyard hose. When we’re looking for our morning coffee we can march down to Starbucks for a toffee nut crème latte with steamed non-fat soymilk and whipped cream topping or we can heat up some instant coffee on our way out the door. Either way, as Americans we understand the power in choices. However, when it comes to health care, our options often seem limited at best.
With the rapidly rising cost of health care millions of Americans are finding it increasingly more difficult to afford health insurance today. To help combat this problem, Congress passed legislation that created Health Savings Accounts (HSA). HSA accounts allow individuals to place money into a savings account tax-free for future medical expenses. They are available to everyone with a high deductible health insurance plan, the only limitation on the health plan being that the annual deductible must be at least $1,000 for individual coverage and at least $2,000 for family coverage.
Health Savings Account funds can be used to cover the health insurance deductible and any co-payments for medical services, prescriptions, or products. They can even be used to purchase over-the-counter drugs and long-term care insurance, and to pay health insurance premiums during a period of unemployment. And what is not used from the account each year stays in the account and continues to accrue interest on a tax-favored basis, just like an IRA. Here are five additional reasons to consider a Health Savings Account for your family or business:
1. Tax Savings
Contributions to the HSA by an employer are not included in the individual's taxable income. Contributions by an individual are tax deductible. Individuals, their employers, or both can contribute tax-deductible funds each year up to the amount of the policy's annual deductible, subject to a cap of $2,600 for individuals and $5,150 for families. Individuals aged 55-64 can make additional contributions.
2. Earned Interest
The interest and investment earnings generated by the account are also not taxable while in the HSA. Amounts distributed are not taxable as long as they are used to pay for qualified medical expenses, such as prescription and over-the-counter drugs and long-term care services as well as the purchase of continued health care coverage for the unemployed individual (via COBRA).
3. Reduced Insurance Premiums
Your insurance premiums may be lowered by 20%-40% when you change from a low-deductible to a high-deductible plan. You can use these savings to fund your HSA.
4. Portability
HSAs are portable, so an individual is not dependent on a particular employer to enjoy the advantages of having an HSA. Like an individual retirement account (IRA), the HSA is owned by the individual not the employer. If the individual changes jobs, the HSA goes with the individual.
5. Long-Term Savings
You can choose to let the funds in your account grow tax-deferred. Money not spent stays in the HSA and earns interest, giving healthy individuals fallback funds for later expenses. People who are at least 65 years old may withdraw money from their HSAs for any purpose without penalty, though the money drawn does become taxable.
When combined with a low-cost, high deductible health insurance policy, a health savings account can replace a traditional high-cost health insurance policy with its low co-pays and large number of restrictions on medical choices. A health savings plan will restore a degree of freedom of choice by allowing you to choose your own physician, typically from an extensive PPO directory, without the extensive restrictions imposed by HMO-type plans. While health savings accounts, just like the toffee nut crème latte, won’t suit everyone’s needs or desires, HSAs do add to the list of health care options. To learn more about Health Savings Accounts and whether they are right for you and your family, visit the US Department of Treasury at:
www.ustreas.gov/offices/public-affairs/hsa.
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