Considering Health Savings Accounts

Since Health Savings Accounts (HSAs) were created by the Medicare bill signed into law in 2003 they are being considered by more and more Texans as a health insurance option. Here is a quick overview on a complicated subject.

What's a Health Savings Account (HSA)?

They have two parts. The first part is a qualified high-deductible health insurance policy that covers large medical bills. The second part of the Health Savings Account is an investment account or retirement account from which you can withdraw money tax-free for medical care. If you don't withdraw the money for medical expenses, the money accumulates with tax-free interest until the age of 65, when you can withdraw it for any purpose and pay normal income taxes.

Who's eligible for an HSA?

Anyone under age 65 who buys a qualified high-deductible health insurance policy can open an HSA. If you're covered by another health insurance policy that isn't a qualified high-deductible plan (either as an individual or a dependent), you're not eligible for an HSA. If, however, you are eligible, you can still carry other accident, disability, dental, vision and long-term care insurance policies.

How much can I contribute annually to an HSA?

For 2007, you can contribute up to $2,850 for individual coverage or $5,650 for families. If you're 55 and older, you can make a catch-up contribution of $800. Legislation approved at the end of last year allows you to contribute up to these limits, even if your insurance deductible is less.

Can any high-deductible health insurance policy qualify for an HSA?

Any high-deductible health insurance policy can qualify, as long as it meets the IRS requirements. The deductible must be at least $1,050 for individuals or $2,100 for families, and the annual out-of-pocket expenses cannot exceed $5,250 for an individual or $10,500 for a family. This includes deductibles and co-payments, but not premiums. So you can buy an individual high-deductible healthcare policy, or purchase one through your employer.

To qualify as an HSA-eligible policy in 2007, your health insurance plan must have a deductible of at least $1,100 for individual coverage or $2,200 for families. You can then make a contribution to your HSA up to the amount of the deductible each year. If you're buying an individual plan, be sure to ask your health insurance company if it is an HSA qualified high deductible plan. Not all high deductible plans are eligible, or qualified.

Where can I get an HSA-Eligible Plan?

First you need a qualified high deductible plan. Finding a plan depends on whether you get it through your employer or purchase individual insurance.

Employer Insurance If you get health insurance through your employer, ask about the HSA-eligible option during the group policy's open-enrollment period, which is generally in the fall. Or talk to your benefits manager to see if HSAs will be on your health insurance menu. Choosing an HSA could significantly reduce your share of premiums, and some employers may opt to fund all or part of the HSA, much like a 401(k)-style match.

Individual Insurance - You can find a list of health insurance companies offering HSA-eligible plans in Texas on line. The list of companies offering HSA-eligible plans continues to grow every month.

Your individual insurance company or employer will then almost certainly direct you to their preferred vendor for the administration of your HSA account. Using the preferred vendor is usually to your advantage as data is more easily transferred between the insurance company and the HSA administrator and you get a break on the administration fees. You are, however, free to chose another HSA administrator if you prefer.

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