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. |
|
