Health Savings Accounts (HSA)

A Health Savings Account (HSA) is a tax-advantaged medical savings account available to all the taxpayers in the United States who are enrolled in a High Deductible Health Plan. It was created by the Medicare bill signed by President Bush and are designed to help individuals save for future qualified medical and retiree health expenses on a tax-free basis.

A Health Savings Account (HSA) is a special account owned by an individual used to pay for current and future medical expenses. HSAs are often used in conjunction with a “High Deductible Health Plan” (HDHP). It is a kind of insurance that does not cover first dollar medical expenses. It can be an HMO, PPO or indemnity plan, as long as it meets the requirements.

Some of the classic examples where in HSA kicks in are:

  • Specific disease or illness insurance and accident
  • Disability, dental care, vision care and long-term care insurance
  • Employee Assistance Programs
  • Disease management program or wellness program

These programs must not provide significant benefits in the nature of medical care or treatment.

It also gives the benefits in programs such as a drug discount card.

Unspent HSA money automatically rolls year to year and those funds can either earn interest or be invested into participating mutual funds for greater returns – potentially building a tax-free nest egg for healthcare costs. While it sounds like a win-win for both employers and employees, it’s still a hard sell for some companies. With some current healthcare deductibles as low as $150, employees may get put off by HSA’s much higher deductibles. And there’s something disconcerting about paying the entire cost of a doctor’s visit up-front, rather than the standard $15 or $20 co-payment.

HSA participants are no longer bound by referrals to receive medical care and, in some cases physicians are willing to negotiate lower prices for up-front payment because it saves them the trouble of dealing with insurance companies.

Please be advised that HSAs aren’t for everyone. Consult with a benefits advisor before investing in it. Keep in mind that while savings are accumulating in the first year, if there is a sudden expensive health emergency, you may not necessarily have the funds to cover it in your HSA. That mean you’re responsible for those out-of-pockets costs.