The Breakdown on Health Saving Accounts (HSA)
Health Savings Accounts are an easy way of paying your out-of-pocket medical expenses, and may even save you money in the long run if you manage them to your advantage. California employee health insurance now includes the option of opening a Health Savings Account (HSA) at open enrollment time of your health care benefits with your employer.
An HSA plan consists of a high-deductible health plan and an HSA bank account (usually a checking account) that is used to pay only medical expenses. Your contributions to the HSA account accrue interest and some banks offer built-in investment options such as mutual funds or money market funds. Contributions made to your HSA over the year are tax deductable.
HSA plans can be set up for families as well as for individuals. The annual limit for family contributions in 2011 is $6150, and for individuals is $3050. If you are 55 or older, there is a one-time catch-up contribution of $1000 you can make to your HSA. Many employers set up HSAs for their employees and pre-fund the HSA to make the offer more appealing. Employees take the HSA with them when they change jobs, too. Once the account holder reaches age 65, funds from the HSA can be withdrawn as retirement income.
One change that is new in 2011 is that the penalty on taxable, non-medical expenses increases from 10% to 20%.
Sometimes it makes more sense to have a health insurance policy with a low-deductable, but sometimes it does not. Having an HSA gives you added flexibility on how to apply your tax-deferred money toward medical expenses. If you have a low deductible, you also have high premiums, and if you're paying a high premium and going to the doctor only a few times a year, you may find your money better spent using an HSA. With an HSA, you can afford to have a higher deductible, because you can fund the HSA as is necessary to cover your medical expenses as they arise. So, instead of having to pay your high premium before your really need to use it, you can decide when and how much to fund your HSA.
Heatlh Savings Account are yours. That means you have control of when and how to use it. It also means, you can switch to a lower premium policy while covering a higher deductable. As you build your HSA you'll be able to afford even higher deductables. This is one great option you should explore with your insurance agent or trusted financial advisor.
About the Author
Brauer Insurance is a no-fee, independent insurance agency specializing in Employee, Group, Family, and Individual Health Insurance in San Jose, California. You can call them to get answers to your health insurance questions at (408) 421-5555 or visit their website at www.brauerinsurance.com.