THE BASICS OF HSAs
Synopsis by Dave Ballard Insurance
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.
What Is a “High Deductible Health Plan” (HDHP)?
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 2005, in order to qualify to open an HSA, your HDHP minimum
deductible must be at least $1,000 (self-only coverage) or $2,000
(family coverage). For 2006, the amounts increase to $1,050 and
$2,100, respectively. The annual out-of-pocket (including
deductibles and co-pays) for 2005 cannot exceed $5,100 (self-only
coverage) or $10,200 (family coverage). For 2006, these amounts
increase to $5,250 and $10,500, respectively. 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.
How can I get a Health Savings Account?
Consumers can sign up for HSAs with banks,
credit unions, insurance companies and other approved companies.
Your employer may also set up a plan for employees as well.
How much does an HSA cost?
An HSA is not something you purchase;
it’s a savings account into which you can deposit money
on a tax-preferred basis. The only product you purchase
with an HSA is a High Deductible Health Plan, an inexpensive plan
that will cover you should your medical expenses exceed the funds
you have in your HSA.
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