A HSA combines high deductible health insurance with a tax-favored savings account. Money in the savings account helps pay the deductible and other out of pocket medical expenses. Once the deductible is met, the insurance starts paying. Money left in the savings account earns interest and is yours to keep.
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.
HSAs help you save tax-deferred and distribution are tax-free if used for medical expenses.
You obtain coverage under a qualified health insurance plan with a minimum deductible of $1,100 for singles and $2,200 for families. The typical deductible used are $1850 or $2850 for Individuals and $3800 or $5650 for families.
Each year you're allowed to save 100 percent of the health planýs annual deductible, up to $2,850 for singles and $5,650 for families in 2005. Older Americans can save even more with a catch up provision. If you are 55 or older then the catch up contribution amount is up to an additional $800.
You use the savings account to pay for your lower-dollar medical expenses, or those that aren't covered by the health plan.
Once you meet the deductible, the health insurance covers your medical expenses as defined in the policy.
What are the benefits of a Health Savings Account?
How Does a Health Savings A
Health Coverage Benefits
Medical
Simple: 100% coinsurance after the deductible is met (optional 80% coinsurance to lower premium).
Predictable: One deductible per family.
Comprehensive: Quality medical, including adult preventive care and prescription drugs.
Savings Account
First dollar: Savings can be used to help pay the deductible and for noncovered medical expenses, such as dental and vision.
Security: Savings reduce or eliminate annual out-of-pocket exposure.
Pool of money: Savings not spent remain in the HSA tax-deferred.
Tax Benefits
Tax-deductible: Contributions to the HSA are 100% deductible -- just like an IRA
Tax-favored: Withdrawals for covered medical expenses are never taxed.
Tax-deferred: Interest earnings accumulate tax-deferred, and if used for qualified medical expenses, are tax
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