Health Savings Accounts

Health Savings Accounts (HSA) are designed to help individuals save and pay for future qualified medical and retiree health expenses on a tax free basis. It is the latest concept in affordable health care.

The HSA combines a qualified high deductible medical health plan with a separate savings account held by a trustee or a bank. The high deductible health plan covers serious illness and injury, while the HSA allows reimbursement for expenses such as deductibles and other out of pocket medical expenses.

A HSA consists of funds that, when deposited in the account, are tax-deductible to whomever deposits them – an individual, an employer, or both. The funds may draw tax free interest or the account owner may elect to allow them to grow through various investment options. Annual contributions reduce the account owner’s taxable income while qualified reimbursements of medical expenses are never taxed. All the money contributed to the account grows tax deferred until such time the funds can be withdrawn for any non-medical purpose at ordinary tax rates, or tax free when used for medical expenses.

When compared to other consumer driven health care options, a HSA provides the most flexible, long term commitment opportunities to individuals. Unlike other consumer driven health care options, HSA funds accumulate from year to year.  The account belongs to the individual or employee and is portable.

Businesses may establish a qualified high deductible health plan with as few as two employees. One must be careful with a HSA because if the account owner is under age 65 and uses the funds for non-eligible medical expenses, the disbursement will be subject to income tax and penalty.  Click here for more information on Health Savings Accounts.