Health Savings Accounts (HSAs)

Health Savings Accounts (HSA) were first enacted as a part of the Medicare Prescription Drug Improvement and Modernization Act of 2003. They were created because it was believed that participants needed access to tax advantaged savings accounts to help pay for medical expenses not paid for by insurance, and that the new higher deductible health plans would reduce overall costs to employers, and make affordable insurance available to more employees. If participants were responsible for paying a portion of their medical expenses out of their own HSA, and retaining what they did not spend in their tax advantaged account, they would become wiser consumers.

HSA’s are similar to Flexible Spending Accounts (FSA) and Health Reimbursement Accounts (HRA), but can provide even greater value, because the HSA is portable, earns tax deferred interest and can accumulate over time.

Here is how a typical HSA would work in a typical employer sponsored plan, but an HSA may be purchased by an individual, as well:

• The employer purchases a qualified high deductible catastrophic health plan (HDHP) for a reduced premium.
• Employee contributions are reduced and the employee redirects the savings into an HSA on a pre-tax basis.
• HSA balances are allowed to earn tax deferred interest, rollover each year until Medicare eligibility, may be invested and are portable, should you change jobs.
• HSA funds may be used to pay for eligible medical expenses listed under Section 213(d) of the IRS Code, including many services not routinely covered under insurance. These medical expenses are paid with pre-tax funds!
• Unused HSA funds may be rolled over, tax deferred, each year and allowed to accumulate for future medical expenses.
• Should a catastrophic condition arise, the employer's insurance plan will pay the benefits for expenses in excess of the HSA Account.

Click here to view our FSA / HRA / HSA Comparison Chart for more information on Consumer Directed Health Plans.