Health Savings Accounts

Health Savings Accounts (HSAs) were born out of the Medicare Prescription Drug, Improvement and Modernization Act signed by President Bush in late 2003.

An HSA is like a tax-sheltered savings account. You even get a debit card. If you don't deplete it this year, the remaining money rolls over into the next, growing at a tax-favored rate. Whatever is left upon retirement you can withdraw and use however you wish.

To be eligible for an HSA, you must have a qualified High Deductible Health Plan (HDHP), which is an inexpensive, health insurance policy with much higher out-of-pocket cost. Though the deductible includes all your medical expenses, the plan can cover preventative care, such as immunizations, prenatal care and physicals. All other expenses, including prescriptions, are paid using the funds in your Health Savings Account.

Each year, you and your employer can contribute to your HSA up to the deductible amount of your HDHP.

Who Should Get an HSA?

Individuals with few health-care needs benefit most from an HSA. Portable, flexible and, if you rarely seek medical care, affordable, an HSA is a better choice for some.

An HSA is like an IRA, providing a place for you to deposit non-taxable money you can collect when you retire. And you'll likely save money on the HDHP because your health insurance premiums will be much lower.

When Is a Traditional Plan Better?

If you have a chronic condition that requires frequent medical care and numerous prescriptions, an HSA could get pretty expensive and you should probably pick a standard managed-care plan. With an HSA, you're required to pay those costs until you reach the deductible, which can be as high as $1,050 for an individual and $2,100 for a family.

HSAs, yes or no? It's a personal choice that will likely affect many facets of your life, so be sure to assess your personal situation—your physical health, your financial health—before making the switch from a standard health insurance plan to an HSA.

Related:

http://www.treasury.gov/offices/public-affairs/hsa/