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Basic HSA Explanation

Health Savings Accounts (HSAs) are designed to help individuals and families on high deductible health plans (HDHPs) save money, tax-free, for qualified medical expenses.

  1. High Deductible Health Plans

    • HDHPs have higher minimum annual deductibles than full-coverage plans and a maximum for out-of-pocket expenses. HDHPs typically have lower premiums than other plans.

    Eligibility

    • HSA owners must be enrolled in an HDHP. They cannot be covered by other health insurance (with certain exceptions), enrolled in Medicare, or claimed as a dependent on anyone's tax return.

    Uses

    • HSA withdrawals may be used for medications, doctor visits, tests, hospital stays and other medical expenses.

    Financial Advantages

    • HSA contributions and withdrawals for qualified expenses are tax-free. For the 2010 tax year, a limit of $3,050 may be contributed to an individual HSA, or $6,150 to a family HSA.

    Financial Disadvantages

    • In 2010, the minimum annual deductible for HDHPs is $1,200 for an individual and $2,400 for a family, though many plans have a higher deductible (and consequently a lower premium). HDHPs don't pay benefits, except for preventive care, until the deductible amount is paid. For some individuals, a full-coverage health plan is a better choice.

    Availability

    • HSAs are available at many major and local investment firms, banks and credit unions, with proof of eligibility.

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