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Health Savings Accounts
Considered by many to be the updated version of Medical Savings
Account (MSA), the new Health Savings Account (HSA) legislation
was signed into law by President George W Bush on December 8, 2003.
In a marked departure from MSA plans, the new HSA plans include
almost everybody into their fold. The new HSA has in fact implemented
three significant changes from the earlier MSA plans: availability
of lower deductibles, provision to contribute up to 100% of the
deductible amount to the HAS and making many more people eligible
for the program. These tax-advantaged savings accounts were established
as part of the Medicare Prescription Drug, Improvement, and Modernization
Act and are a component of Consumer Driven Health Plans. An alternative
to traditional health insurance, it offers a different way for consumers
to pay for their medical treatment. With the help of these plans,
you can pay for current health expenses and save for future qualified
medical and retiree health expenses on a tax-free basis.
If you are self-employed, your deposits will be fully tax-deductible
and you are free to withdraw by check or debit card to pay routine
medical bills with tax-free money. In order to be able to utilize
the HAS plans, you must be covered by a High Deductible Health Plan
(HDHP), that usually costs less than what traditional health care
coverage costs. This enables you to put the money that you save
on insurance into the Health Savings Account. An HDHP is a relatively
less expensive health insurance plan that usually does not pay for
the first several thousand dollars of health care expenses but covers
you after that. However your HSA will assist you in paying for the
expenses your plan does not cover.
A Health Savings Account plan offers you the freedom to select
your own physician (usually from an extensive PPO directory) without
imposing that apply to HMO-type programs.
If you want to open an HSA, your HDHP minimum deductible must be
at least $1,100 (self-only coverage) or $2,200 (family coverage).
The yearly out-of-pocket expenses (including deductibles and co-pays)
for 2007 must not exceed $5,500 (self-only coverage) or $11,000
(family coverage). One can sign up for HSAs with banks, credit unions,
insurance companies and other approved companies. Your employer
may also set up a plan for his/her employees as well.
Remember that an HSA is not something you buy. Rather, it is a
savings account into which you can deposit money on a tax-preferred
basis. The only product you buy with an HSA is a HDHP.
HSAs can be of different types with fees, interest rates, investment
options, and other features varying considerably. Some HSAs will
allow you to open online account using E-signature making for an
easier set-up process. Some others will provide account holders
with access to online tools in order to help them make more appropriate
decisions regarding health care expenditure. Some banks also offer
a dedicated HSA customer answer center.
HSAs have both advantages and disadvantages. But in the long run,
the former outweighs the latter making them a popular option.