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Health Savings Account (HSA) - An Overview

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Health Savings Account (HSA)

Some Useful Information on Health Savings Account (HSA)

Apart from Health Reimbursement Account (HRA) and Flexible Spending Account (FSA), there is another variety of financial account that gives tax advantages to insurance coverage holders. Known as the Health Savings Account (HSA), this account specifically is meant to sponsor covered medical services under the health plan an individual holds. No federal tax is slammed against the amount you keep aside to be credited in your HSA. The money in your HSA is tax- free at all times when you choose to use it for eligible medical expenses. In case you withdraw it for any non- medical use you’ll have to bear the burden of a penalty. It is only persons past retirement that can access this account for uses other than medical. If the case is otherwise, it is regarded rather as an offence.

One interesting thing to note about a Health Savings Account is that not every policyholder can get this advantage. Only if you hold a high deductible health plan can you be considered for a Health Savings Account. HSA’s are a part of the concept of consumer driven health plans. Depositing money in an HSA can be done in two different ways. If you’re enrolled for a high deductible health plan in the individual category you can do it yourself. In case you are covered under group plan scheme, your employer can make the deposits. Only if an employer is using Section 125 to make the deposits can he take much of the benefit scale into his own hands. For one, he can decide to give some employees a greater tax advantage than others by depositing more.

Withdrawing money from an HSA for medical use ensures that the amount will not be subject to income tax deductions. Any eligible medical cost may be paid through the withdrawn amount including deductibles, co- payments, coinsurance etc. Usually, Health Savings Accounts allow people to withdraw their deposits in various ways. While some HSA’s issue debit cards, others issue checks. When an account holder is withdrawing an amount he will not be enquired but if he fails to prove he withdrew the money for medical expenditure, taxes will be slammed.

In essence, a Health Savings Account is much like a Medical Savings Account, a precursor. HSA’s have their own set of benefits and demerits. Talking of advantages, an account of this nature can help both healthy and unhealthy people. It is so since all medical expenditures made through the account are aimed towards meeting the deductible. After the deductible amount is met, the Health Savings Account pays for all subsequent medical expenses. Another important benefit arises from the fact that the premiums are lower when you have an HSA to fall back on. That is quite natural since HSA’s come only along with high deductible health plan and high deductibles lead to lower premiums. Disadvantages, supposedly, include the segregation HSA’s make between the rich and the not- so- rich. The former are thought to receive greater benefits.

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