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The Advantages of HSA

A Health Savings Account (HSA) is a health insurance plan that combines an interest-earning savings vehicle with a high-deductible major medical insurance policy. To qualify, the medical plan must have a deductible that ranges from $1,200 to $5,950 for a single person and from $2,400 to $11,900 for a family, as of 2010.

  1. Lower Premiums

    • When it comes to insurance plans, the higher the deductible, the lower the premium. An HSA must include a high-deductible major medical plan, which typically has a lower premium than many traditional health insurance plans. The money people save in premiums can be used to fund the HSA and withdrawn on a tax-free basis to pay for medical expenses until the deductible is reached.

    Tax Benefits

    • The money that accumulates in the savings element of the HSA plan earns interest on a tax-free basis, and contributions made to the account reduce the insured's adjusted gross income, resulting in tax savings. Money in the account can be withdrawn from the account on a tax-free basis as long as it is used to pay qualified medical expenses.

    No "Use It or Lose It" Feature

    • Unlike a Flexible Spending Account, which requires the insured to use all the money in the account by the end of year or else forfeit it, the HSA continues from year to year. If you have no medical expenses in a given year, the fund stays active and continues to accumulate interest.

    Retirement Savings

    • The savings feature of an HSA is similar to that of an IRA. By the time you reach age 65 and no longer need the major medical insurance because of Medicare eligibility, you can withdraw from the savings account without penalty, though the funds will be considered taxable income.

    Flexible Contributions

    • Insureds decide how much money they wish to contribute to the account. There is no minimum requirement (other than to pay the premium for the major medical insurance), and as much as $3,050 a year can be contributed by a single person and up to $6,150 is allowed for a family, as of 2010. After age 55, insureds can contribute an additional $1,000 year.

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