HSA: A Medical Plan that Makes Cents

By Compuquotes Team on April 21st, 2008
Health Insurance

Health Savings Accounts, also known as Medical Savings Accounts, are one excellent way to save money on your health insurance and medical costs. The HSA is a solution that helps you take control of the high cost of health insurance by saving your own money toward medical expenses while paying less for medical insurance. It works in conjunction with a high deductible medical insurance policy and saves you money on health care costs in a number of ways.

  • What is a Health Savings Account (HSA)?

The HSA is a tax-sheltered savings account that's meant to help take the bite out of high health insurance premiums. Established under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, the HSA is meant to be an improvement over the MSA, or Medical Savings Account plan. Essentially, HSA's are rather like IRA's for medical expenses, with similar rules and regulations.

  • How does an HSA work?

One of the most common ways to save money on your health insurance premiums is to opt for a higher deductible. HSAs work in conjunction with a high deductible health insurance plan to save you money on your medical expenses. You enroll in a High Deductible Health Insurance plan, either through your employer or on your own, then open an HSA, which has similar restrictions and advantages to an IRA. You may make contributions to your HSA up to a specified amount each year. Any deposits to your HSA are not taxed in the year that you make the deposit, and may be used toward medical expenses tax-free at any time. You can use the money in your HSA to pay for the deductible on your health insurance policy, and toward medical expenses that are not covered by your health insurance such as dental, vision and alternative medical treatments.

  • How does an HSA save me money?

You'll save money in two ways. First, you'll pay far less for your health insurance because you'll be paying the small bills out of your own savings. When you opt for a higher deductible, your health insurance premium is smaller. Second, you'll save money because all of the money you set aside in your health savings account is 100% tax deductible.

  • What if my medical expenses are more than my deductible?

If your medical expenses in a year exceed the deductible that you've agreed to pay, your health insurance plan takes over and pays your medical bills, as with any health insurance policy. The only difference between a regular health insurance policy with a standard deductible and a high deductible insurance policy is that the deductible is higher - you have to pay more toward your own bills, but you're paying it with tax-deductible dollars.

  • What happens to my money if my medical expenses are less than my deductible?

The money in your health savings account is yours. If you don't need it for medical expenses in any given year, it will remain in your account to earn interest, or be invested as you direct. You can still make your maximum contribution the next year, and the excess from this year doesn't change your deductible amount at all. In other words, just because you have more money in your Health Savings Account, you don't have to pay more toward your medical expenses before your health insurance kicks in.

If you don't use the money in your health savings account each year, the money that remains in it - and any interest that it earns - is totally tax-free. The only time that you pay taxes on money contributed to your health savings account is if you withdraw it to use for something other than medical expenses.

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