Health Savings Accounts
Savings Accounts (HSAs) were established by President Bush in2003. They are medical savings accounts that are designed to help individuals save for future medical expenses. One of the biggest advantages of an HSA is that they funds can be put into the account on a tax-free basis. It is both a savings vehicle and a form of health coverage.
In order to qualify, participants must be enrolled in a so-called High Deductible Health Plan, which, like it sounds is a health plan that requires users to pay a relatively high deductible each year before benefits kick-in. Deductibles start at $1,100 for individuals and $2,200 for families. Another advantage to an HSA is that the funds deposited into them are allowed to roll over from year to year, and account holders can take their accounts anywhere with them, irrespective of where they work.
Contributions can be made both by individuals and by employers. Contribution limits are $3,000 for an individual and $5,950 for a family. Those over the age of 55 can make “catch-up” contributions in addition to normal contributions. The limit for this type of contribution is $800. The maximum annual out-of-pocket amounts for these plans are $5,500 for individuals and $11,000.
Funds in Health Savings Accounts can be used to pay a wide variety of health-related expenses, again, on a pre-tax basis.
Health Savings Accounts have not been without controversy. Proponents point to their influence in directing individuals toward savings for health care expenses, and toward taking active steps to get and remain healthy. They are also less expensive alternatives for corporations to offer, which makes them very attractive in an environment where health benefit costs have increased about 8 percent each year for the past decade. Advocates also tout the merits of individuals owning their own health accounts.
On the downside, the high deductible makes Health Savings Accounts an inadequate alternative for many lower-income individuals.