What is a Health Savings Account?

A Health Savings Account (HSA) is a new form of consumer directed health coverage pairing a high-deductible health plan with tax-free savings account for medical expenses.  Specifically, according to the US Dept of Treasury, a “Health Savings Account is an alternative to traditional health insurance; it is a savings product that offers a different way for consumers to pay for their health care. HSAs enable you to pay for current health expenses and save for future qualified medical and retiree health expenses on a tax-free basis.”

One of the requirements of an HSA is that you have a High Deductible Health Plan (HDHP).  Sometimes referred to as a “catastrophic” health insurance plan, an HDHP is an inexpensive health insurance plan that generally doesn’t pay for the first several thousand dollars of health care expenses (i.e., your “deductible”) but will generally cover you after that.

The following are some of the benefits of an HSA:

• Tax advantages:
  • Within a limit, money deposited into an HSA account is exempt from income tax (some states also make the money free from state tax)
  • The money withdrawn to pay medical expenses is also tax free
  • Money not used is allowed to stay in the account, earning interest that is not taxed
  • After the age of 65, you can withdraw your money from the account for any reason.

• Your business creates a savings account that is used to meet your deductible
• Tax deductible off of gross income
• Grows tax deferred
• NEVER taxed when used for qualified medical expenses
• Roll over year after year -- no "use it or lose it"
• Portable, also goes with you when you change jobs

Instead of paying a traditional deductible to an insurance company, you will invest a higher amount to a bank account for your deductible.  Incorporating an HSA will allow you to use this high deductible to purchase items that you would otherwise purchase and write those items off!  And for doing this, your monthly premiums go down!