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HSA – Health Savings Accounts what are they?  How do they work?

H

Is for the Health Insurance Policy that you must carry.  The Government sets the parameters for what the policy is required to pay. Its deductibles limits are set by the Government.  Below are the guidelines for 2010:

IRS Sets 2010 HSA Contribution Limits

The annual contribution limit on deductions for health savings accounts (HSAs) will increase $50 to $3,050 in calendar year 2010 for an eligible individual with self-only coverage and jump $200 to $6,150 for family coverage, the Internal Revenue Service (IRS) recently announced [Rev. Proc. 2009-29].

For calendar year 2010, a high deductible health plan (HDHP), which must be used in conjunction with HSAs, is defined as having:

* An annual deductible of at least $1,200 for self-only coverage or $2,400 for family coverage (compared to $1,150 and $2,300, respectively, this year); and

* Annual out-of-pocket expenses (e.g., deductibles, co-payments, and other amounts, but not premiums) up to $5,950 for self-only coverage or $11,900 for family coverage (compared to $5,800 and $11,600, respectively, this year).

S A

Is for the Savings Account that you can contribute to each year. The Government set the amount that can be contributed and deducted each year. Below are the limits for 2010.

The annual contribution limit on deductions for health savings accounts (HSAs) will increase $50 to $3,050 in calendar year 2010 for an eligible individual with self-only coverage and jump $200 to $6,150 for family coverage, the Internal Revenue Service (IRS) recently announced [Rev. Proc. 2009-29].

For calendar year 2010, a high deductible health plan (HDHP), which must be used in conjunction with HSAs, is defined as having:

* An annual deductible of at least $1,200 for self-only coverage or $2,400 for family coverage (compared to $1,150 and $2,300, respectively, this year); and

* Annual out-of-pocket expenses (e.g., deductibles, co-payments, and other amounts, but not premiums) up to $5,950 for self-only coverage or $11,900 for family coverage (compared to $5,800 and $11,600, respectively, this year).

Lets look at a couple of examples:

Take a family of 4, Dad age 35, mom age 35 2 kids age 15 & 13  that would carry a FAMILY deductible of say, $6000.00 cost $339..90. This means that the family would pay ALL medical expenses up to $6,000.00 than the insurance policy would kick in and pay up to 7 million per person.  Now a plan that has $1,000.00 deductible with prescription & doctor co pays would cost $781.12.

The idea is that you use the premium savings from carrying a higher deductible and place in a savings account.  These funds are tax deductible and available to be used to pay for qualified medical expenses.  Always on a tax free basis!  The great part is that if you don’t use the funds you don’t lose them.  They can simply build for future use. Maybe even toward retirement.  If you at retirement, you will be able to withdraw the funds and simply pay taxes at that time.  You can always use the funds on a tax free basis for qualified expenses.

Here is another example how the plan could work for individual male age 25.  A $1500.00 deductible plan with 100% coverage to 7 million would cost approx. $101.00 per month.  If they set up a Savings Account they can contribute to the account and deduct from their income taxes.   How much medical expenses does the average 25 year male need.

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