Health savings accounts (HSAs) are tax-advantaged savings accounts where the money is used for medical-related expenses. They have advantages over other medical savings accounts. Here is a summary.
The HSA was created as part of the Medicare Prescription Drug, Improvement and Modernization Act in 2003. They are designed as an incentive for consumers to take charge of their health care. You deposit money into an HSA, before tax, and you can use that money to pay qualified medical expenses without any tax liability. Qualified expenses may include dental, vision and chiropractic care, durable medical equipment, eyeglasses and more.
Unlike a Flexible Spending Account (FSA), an HSA is something that you own. The balance rolls over year-to-year, and you can take it with you if you leave the insurance plan. Also, the money can be invested, like an IRA, and grow. So how can you take advantage of an HSA?
To participate, you must enroll in a High Deductible Health Plan (HDHP). A HDHP means you will pay a much higher deductible than say an HMO or other plan, but your premium will be much lower. With an HDHP, once the deductible is met the plan may even cover 100% without any coinsurance. Plus, the money you have saved in your HSA, can be used to pay that deductible. If you don't use the insurance, you'll have all that money saved for the next year.
If you leave the HDHP insurance, you can no longer contribute to your health savings account. But you can keep the money and use it for qualified medical expenses at anytime.
Check with your employer to see if they offer a High Deductible Health Plan with a health savings account. Often, employers will contribute some money to your HSA. You can also get quotes online for different HDHPs to compare plans, coverages and deductibles. An insurance comparison Web site is a good place to start because they can give you access to several quotes.
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