Healthy Healthcare Solutions

Add comment July 2nd, 2008

  Theresa A. Harezlak, CFP^® 

Health care—it’s on everyone’s mind these days. Even the presidential candidates have moved health care to the top of their platforms. As we struggle to find the best ways to insure all Americans, most of us still have to address the rising costs of healthcare and rising costs of healthcare premiums.

In the absence of a clear cut solution, High Deductible Health Plans (HDHP) with Health Savings Accounts (HSAs) are gaining in popularity. Some frequently asked questions:

What is a Health Savings Account? 

An HSA is like a 401(k) for healthcare.  It is a tax-advantaged personal savings or investment account that individuals can use to save and pay for qualified health expenses now or in the future. These accounts exist in conjunction with High Deductible Health Plans. 

However, unlike other financial saving vehicles such as an IRA or 401(k), an HSA has the unique potential to offer triple tax savings. 

• Contributions to an HSA account are tax-deductible.  They are considered “above the line” deductions and thus can be taken even if you do not itemize.
• Any HSA funds not used each year remain in the account, and earn interest tax-free. 
•  Distributions are tax free when they are used for qualified medical expenses.  You do not need to get an approval from the HSA administrator and you do not need to submit receipts, although you should save them just as you keep receipts for other items that are deducted from your taxes.

How much can I contribute to an HSA account? 

Individuals can contribute up to $2,900 each year or $5,800 for a family.  If you are between the ages of 55 and 65, you can make an additional annual “catch up” contribution of up to $900.  These are the 2008 contributions and the contribution levels are indexed annually. 

Who is eligible for an HSA? 

Any individual covered by a High Deductible Health Plan and not covered by any other health insurance can set up an HSA.  You cannot be enrolled in Medicare or be claimed as a dependent on someone else’s tax return.  There are no income limits and no earned income requirements to be eligible to contribute to an HSA.

What is a High Deductible Health Plan? 

A High Deductible Health Plan is a type of insurance plan that typically has a high deductible.  Because of the high deductible, the premiums you pay for that insurance coverage are usually lower than other insurance programs.  To qualify as an HDHP, the health insurance plan must have an annual deductible of at least $1,100 for individuals and at least $2,200 for families.  The annual out of pocket expenses (deductibles, co-payments and other expenses) can not exceed $5,600 for individual plans or $11,200 for family plans. 

For more information on HSA accounts, visit www.treas.gov and search HSA.