What are the pros or cons of a Health Savings Account?
by admin ~ January 21st, 2008 . Filed under: Insurance .
AKA Dawn Desantis asked:
Is an HSA better than regular health insurance? Is it really true that the company that I work for and me save money with HSAs?
Rex Zwolak
Is an HSA better than regular health insurance? Is it really true that the company that I work for and me save money with HSAs?
Rex Zwolak
January 23rd, 2008 at 1:57 am
Advantage is they a pre tax dollars going into your account. Disadvantage is that you have to use the money in the account for medical expenses.
January 25th, 2008 at 7:26 am
It is not a replacement for health insurance. The money from the HSA will pay for your health premiums, medicines, and doctor’s copays. The money is not taxed in this account so you save on taxes. The only con is that you have to use all of the money in your HSA by the end of the year or you lose it.
January 25th, 2008 at 5:01 pm
You do NOT have to use all the money in an HSA by the end of the year. It continues to roll over, and you do not lose the money that you put into it.
HSAs are designed to help patients manage their own healthcare. In most instances, you pay smaller premiums because deductibles and out-of-pocket amounts are higher with an HSA than with traditional insurance. If you’re healthy and typically do not have a lot of healthcare claims in a year’s time, an HSA is probably perfect for you.
The money that goes into an HSA is pre-taxed, so that saves you money as well.
I think HSAs and other consumer-driven healthcare products are the way of the future, and as time goes on we’ll see less and less of the “traditional” insurance coverage of the past.
January 28th, 2008 at 12:15 am
HSA will take your money pre-tax so your taxable income is lower saving you TAX dollars. But remember HSAs were created to supplement medical insurance, not replace it. Let me give you a simplified example.
Say you put aside $3000 /year in an HSA and you’re in the 10% tax bracket. By lowering you taxable income you save $300 you would have had to paid to Uncle Sam. Remember $250 / month is coming out of your take-home pay and going into an account somewhere to pay for your out of pocket medical expenses. Say you’re healthy for three years and have $9000 + interest saved into your HSA; but then you get into an accident that puts you in the hospital for a week. Say your medical bill comes to $100,000 and the hospital wants to get paid. Without medical insurance, you’ll have $9K to pay towards your expenses, but are on the hook for the balance of medical costs.
HSA is a tool to help pay deductibles, but it is NOT insurance. Most of the time, HSAs are bundled with high deductible insurance; the high deductibles help keep insurance premiums down. This is not helpful to lower income people since they have to pay to fund the HSA AND pay insurance premiums, neither of which are affordable. And if you have a cronic illness, forgetaboutit, an HSA is a drop in the bucket.
January 31st, 2008 at 10:57 am
A health savings account (HSA) is a savings vehicle established to set aside funds tax free to pay for health care expenses. HSAs, created as part of the Medicare Prescription Drug and Modernization Act of 2003, HSAs allow individuals who have high-deductible health plans (HDHPs) to save money for health-care expenses tax free. HSAs can be established by any qualified individual covered by an HDHP.
Who can establish an HSA?Generally, if you are covered under an HDHP, you are eligible to establish an HSA. In 2007, a qualifying HDHP health plan (1) has an annual deductible of at least $1,100 for individual coverage or $2,200 for family coverage, and (2) limits annual out-of-pocket expenses (e.g., co-pays, deductibles) to $5,500 for individual coverage and $11,000 for family coverage.
You will not be eligible to open an HSA, even if you are covered under an HDHP, if any of the following apply:
You are already covered under a non-HDHP, including a comprehensive major medical plan, a plan sponsored by your employer or your spouse’s employer, or a prescription drug plan or rider with a low deductible or no deductible. (Some health plans are exempted from this provision, including dental or vision care insurance, long-term care insurance, disability insurance, and accident insurance.)
You can be claimed as a dependent on another person’s income tax return.
You are entitled to Medicare coverage (i.e., you are age 65 or older), and have enrolled in Medicare.
o qualify as an HDHP, a plan offering family coverage must specify that no payment can be made from the plan for any individual (except for exempt preventative care benefits to which a deductible does not need to apply) until the family deductible is satisfied.
If your spouse has non-HDHP family coverage, but that plan does not cover you, you may still contribute to an HSA if you are otherwise eligible to do so. However, your spouse will not be eligible to contribute to an HSA.
An HSA is a tax-exempt trust or custodial account that can be established through any qualified trustee or custodian, including a bank, an insurance company, or a third-party administrator. In some cases, this may be the same institution offering the HDHP. You can open an HSA on your own or, if available, through your employer. Employers may offer HSAs as part of a cafeteria plan.
You, your eligible family members, or others who wish to do so can make contributions to your HSA. If you’re employed, your employer may also make contributions to your HSA. Contributions may be made directly or through salary reduction under a cafeteria plan (if offered by your employer). However, no contributions can be made to your HSA once you retire.
Employers who make contributions to employee HSAs must generally make comparable contributions to the HSAs of all comparable participating employees (either the same percentage of the deductible amount or the same dollar amount). Otherwise, the employer must pay an excise tax equal to 35 percent of the actual contributions made. An employer, can, however, make larger HSA contributions for nonhighly compensated employees than for highly compensated employees without violating the comparability rule. In addition, the comparability rule is applied separately to part-time employees and does not apply to contributions made through a cafeteria plan. However, contributions to an HSA made under a cafeteria plan are subject to Section 125 nondiscrimination rules.
For 2007, you can contribute up to $2,850 for individual coverage, and $5,650 for family coverage, to your HSA. This annual limit is the sum of the limits determined separately for each month (i.e., the amount you can contribute in each month is computed by dividing the annual contribution limit by 12).
You can choose to make monthly contributions to your HSA, or you can make a lump-sum contribution any time before your tax return becomes due (i.e., for most individuals, by April 15th of the year following the year for which contributions are being made), as long as your contributions have already accrued.
What if you become eligible for an HSA after the beginning of the year? In this case, your maximum contribution for the year is the annual maximum dollar amount for the year, even though you weren’t eligible for the entire year. However, you must remain in the HSA-eligible plan for the entire calendar year following the last month of the year in which you made that contribution. Otherwise, the contribution will be included in your gross income for the calendar year in which you ceased to be eligible, and will be subject to an additional 10 percent penalty tax.
You may also be eligible to make additional “catch-up contributions” to your HSA if you are 55 or older. For 2007, the catch-up contribution amount is $800. This amount is scheduled to increase by $100 each year until it reaches $1,000 in 2009. (If eligible, both you and your spouse can make separate catch-up contributions to an HSA.) However, no regular or catch-up contributions can be made once you reach age 65 and are enrolled in Medicare.
You may be ineligible to make contributions to an HSA if you are currently covered under a flexible spending account (FSA) or a health reimbursement arrangement (HRA) that duplicates coverage provided by the HSA. However, if you have an FSA or an HRA, you will be eligible to participate in an HSA if:
Your FSA or HRA is a limited purpose account that repays or reimburses only vision, dental, or preventative care expenses
Your FSA or HRA is a high-deductible arrangement (called a post-deductible arrangement by the IRS) that pays or reimburses health-care expenses only after the minimum annual HDHP deductible has been satisfiedYou suspend your HRA for a time by electing to forgo payment or reimbursement of HRA benefits incurred during the suspension period (your employer can continue to make contributions during the suspension)
Your HRA is a retirement HRA that only reimburses medical expenses you incur once you retire (though contributions can be made before you retire).
As the account owner, you can direct your contributions to a savings or investment option offered by the qualified trustee or custodian of your HSA. Any interest and investment earnings on contributions grow tax deferred until withdrawn, and like contributions, will be tax free when withdrawn if used to pay qualified medical expenses.
Individual contributions you make to your HSA that do not exceed the maximum contribution limit are tax deductible on your federal income tax return. Because you deduct these contributions “above-the-line” when computing your adjusted gross income, you can deduct HSA contributions even if you don’t itemize. You can also deduct contributions made by a family member on your behalf.
If your employer makes contributions to your HSA, these are excludable from your gross income. Any contributions made through a cafeteria plan are treated as employer contributions. However, you cannot deduct employer contributions to your HSA.
You can withdraw money from your HSA for qualified medical expenses for yourself, your spouse, and your dependents. Distributions from an HSA for qualified medical expenses are not taxable. However, distributions for nonqualified expenses are considered taxable income and are subject to an additional 10 percent penalty.
The 10 percent penalty for nonqualified expenses does not apply if the distribution is made as a result of the beneficiary’s death or disability or when the beneficiary reaches age 65.
Qualified medical expenses are health-care expenses, as defined by Internal Revenue Code 213(d), that are paid by you, your spouse, or your dependents. These include laboratory fees, prescription and nonprescription drugs, dental treatment, ambulance service, eyeglasses, and hearing aids, as well as many other health care expenses. HSA funds may also be used to cover health insurance deductibles and co-payments.
Generally, health insurance premiums, including HDHP premiums, are not qualified expenses, except for the following types of health coverage (1) COBRA coverage; (2) Qualified long-term care insurance (3) Health coverage maintained while receiving unemployment compensation and (4) Retiree health insurance other than a Medicare supplemental policy (Medigap).
The HSA trustee or employer is not responsible for ensuring that amounts distributed from an HSA are used for qualified medical expenses.
For a list of qualified medical expenses, see IRS Publication 502.
If eligible, you may roll over funds from your IRA to your HSA once during your lifetime. However, the amount you roll over can’t exceed the annual HSA contribution limit for that year, and is reduced by any amount you’ve already contributed to your HSA for the year.
At the end of the year one of the advantages of HSAs is that unlike FSAs, HSAs do not have a “use it or lose it” provision. Funds remaining in your account at the end of the year are not forfeited and can continue to accumulate tax free year after year until withdrawn.
An HSA is portable. Because the account is yours, you can keep it and continue to make contributions even if you change employers or leave the workforce.
If you divorce
If all or part of your interest is transferred to your spouse as part of a divorce settlement, it will not be considered a taxable transfer, and the transferred interest will continue to be treated as an HSA.
If you retire
Although you can no longer open or make contributions to an HSA once you reach age 65 and are enrolled in Medicare, you can take tax-free distributions from your account to pay for medical expenses. You can withdraw funds from your account for nonmedical purposes without owing a penalty (although the amount you withdraw will be subject to income tax).
If you die
Funds remaining in your HSA upon your death become the property of your designated beneficiary. If the beneficiary is your spouse, he or she becomes the account holder and the account remains an HSA. If the beneficiary is not your spouse, the account ceases to be an HSA as of the day of your death, and the fair market value of the funds are includable in your beneficiary’s gross income.
February 3rd, 2008 at 6:04 pm
Pros: You save tax dollars, increase your health insurance buying power, reduce your monthly health insurance premiums, and save toward retirement.
Cons: Not all employers offer HSAs and the annual limit on contributions to the program is too low.
I don’t know who ernesto tig is kidding, but who is in a 10% tax bracket? FICA (Social Security) or self-employment tax alone is that much alone. Federal and state income tax is much more. By eliminating the state, federal, and Social Security tax burden, HSAs increase your health spending dollars by up to 40%.
To qualify for an HSA, you are required to enroll in a “qualified” High Deductible Health Plan (HDHP). This is health insurance with high deductible amounts, so it costs less than traditional health insurance. Under federal law, the minimum deductible in a HDHP plan is $1,100 for an individual and $2,200 for a family. That means that your family would have to pay $2,200 out of your own pocket before the insurance kicks in. The advantage, however, is that you don’t pay with after-tax dollars, with up to 40% of your income already taken out for taxes. Instead, you pay with pre-tax dollars. You may have to pay $2,200 a year in doctor bills, medications, and other medical costs, but without the tax-free HSA, you would have had only $1,320 of those dollars after taxes anyway. Plus you would have paid higher health insurance premiums with that money. The beauty of the HSA is that if you do not use the money in the account, it is yours to keep. It rolls over from year to year. If some of the funds are unspent by the time you retire, you can withdraw them tax-free for any purpose. While the account is active, the money can be invested to earn even more, and the earnings are tax-free, as with an IRA account. You can also use your HSA account to pay for long-term care insurance, in case you are ever in need of round-the-clock care.
To find a qualified HDHP plan or just to compare regular insurance prices, log on to a site like and fill out a request for quote. Good luck!
February 5th, 2008 at 10:17 am
HSA Qualified Health Plans work by coupling a Qualified High Deductible Health Plan (Q-HDHP) with a Tax Advantaged Health Savings Account. The funds deposited to the HSA can be utilized to pay for Qualified Medical Expenses on a tax-free basis and balances roll over from year to year. The minimum Q-HDHP deductibles are $1,100 for single and $2,200 for family coverage. When coupled with 100% co-insurance plans they can significantly reduce the annual maximum out of pocket cash when compared with traditional Co-pay plans. This is especially true when discussing family plans where there may be deductibles for each family member. The Q-HDHP plans utilize family deductibles where one or multiple family members’ medical costs go toward a single deductible.
Five Reasons to consider them!
Reason One - Q-HDHP’s can reduce the insured’s total liability when it comes to maximum out of pocket expenses. One of the more popular $500 deductible Nevada plans has an annual maximum out of pocket of $3,500 - for a family on this plan; the maximum out of pocket is $7,500. In addition, once the maximum annual out of pocket is reached, the insured still pays co-pays for physician’s office visits and prescription drugs. With a Q-HDHP, the more popular “single deductible” plans can offer maximum out of pockets as low as $1,100 for individuals and $2,200 for families. In addition, once the deductible is satisfied, all covered expenses are paid by the plan; including prescription drugs.
Reason Two - For the self-employed; health insurance premiums are 100% tax deductible. However, in order to deduct your qualified medical expenses they have to exceed 7.5% of the insured is Adjusted Gross Income (AGI). Because the funds deposited into the HSA are 100% tax deductible, the insured now gets first dollar tax deductibility of their qualified medical expenses. In addition to routine medical care, some examples of Qualified Medical Expenses are; Dental treatments, Eyeglasses, Fertility enhancement, Lodging, COBRA Payments and LASIK Eye Surgery to name a few.
Reason Three - In 2006, the insured was required to have a Q-HDHP for a full year in order to fully fund an HSA. Thanks to the 109th Congress and President Bush, this is no longer a restriction. In 2007, a single person can now contribute up to $2,850 and a family can contribute up to $5,650, regardless of the deductible selected or when the insured obtains the Q-HDHP. Individuals who are 55 and older can make additional catch-up contributions of $800 to their HSA in 2007.
Reason Four - Nevada has over 120,000 self-employed individuals. The first few years of being self-employed are the most difficult when it comes to cash flow. The IRS is now allowing a one time “penalty free” funding of Health Savings Accounts by rolling funds from an IRA into an HSA. In order to avoid penalties, this must be a trustee-to-trustee transaction. This can free up as much as $470 in monthly cash flow for a family in their mid forties with two teenage children.
Reason Five - Many local banking institutions are now offering Health Savings Accounts. This makes it easier than ever for the self-employed to manage their Nevada Health Savings Account related finances. No longer does the insured have to use an HSA trustee that is located outside of the state of Nevada; making it painless to deposit and access funds that are necessary to pay for Qualified Medical Expenses.