Health Savings Accounts (HSA) came about in 2003 as part of the Medicare Prescription Drug, Improvement and Modernization Act as a means to allow individuals to manage their health care independently, control the costs and provide for themselves and their families later in life.
What is an HSA?
A Health Savings Account is simply another way to put money aside to pay for health care. The money can be used however you choose and can accumulate, generate interest and is used to pay for medical expenses.
Requirement
The U.S. Department of the Treasury requires you have a High Deductible Health Plan or what is often called a Catastrophic Health Insurance Plan. As the monthly cost to maintain a catastrophic plan is usually less then a traditional health plan, the money you save can then be put toward a Health Savings Account plan.
Qualifications
You must be an adult, cannot receive any health benefits as a veteran or be active-duty military. If you are receiving Medicare, are covered by another plan other than a High Deductible Health Plan or are a dependent, you cannot qualify for a Health Savings Account. Your minimum deductible must be $1,100 as a single person and $2,200 if you have a family.
Benefits
When opening a Health Savings Account you have the option of depositing money each month into your account on your own or through an employer, and the employer may match your contribution. IRS Publication 969 states that any amount an employer contributes is not considered income and is not taxable. You have the option of paying for your Health Savings Account before taxes through your employer or taking a deduction on your taxes at the end of the year. All interest earned for the duration of the account is tax free.
Additional Safeguards
Once you open a Health Savings Account, if you qualify for Medicare, you will still be able to contribute to and receive the tax benefits from your account. If you are unemployed or become unemployed, you still qualify for a Health Savings Account and can continue contributing to it. Any unused portion of your Health Savings account, including interest, is automatically carried over to the next year.
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