What is a Health Savings Account Anyway?

From HSACenter.com

A health savings account (HSA) combines high deductible health insurance with a tax-favored savings account. Money in the savings account can help pay the deductible. Once the deductible is met, the insurance starts paying. Money left in the savings account earns interest and is yours to keep.

Health Savings Account Advantages:

• Tax-deductible
  Contributions to the HSA are 100% deductible (up to the legal limit) — just like an IRA.
• Tax-free
  Withdrawals to pay qualified medical expenses, including dental and vision, are never taxed.
• Tax-deferred
  Interest earnings accumulate tax-deferred, and if used to pay qualified medical expenses, are tax-free.
• HSA money is yours to keep
  Unlike a flexible spending account (FSA), unused money in your HSA isn’t forfeited at the end of the year; it continues to grow tax-deferred.

Why High Deductible Health Insurance? To get the benefits of an HSA, the law requires that the savings account be combined with high deductible health insurance. High deductible health insurance costs less than traditional $250 or $500 deductible coverage because the insurance company doesn’t have to process and pay claims for routine, low-dollar medical care.

An HSA works in conjunction with high deductible health insurance.

Your HSA dollars can be used to help pay the health insurance deductible and qualified medical expenses, including those not covered by the health insurance, like dental and vision care.

Any funds you withdraw for non-qualified medical expenses will be taxed at your income-tax rate, plus 10% tax penalty in 2010 and 20% in 2011 if you're under 65.

Once you meet the calendar-year deductible, health insurance pays the remaining covered expenses in accordance with the terms and conditions of your particular plan. Some plans pay 100% of covered expenses after the calendar-year deductible is met.




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