Posted on April 12, 2010.
What are the advantages or disadvantages of a health savings account? Is an HSA better than regular Medicare? Is it true that the company I work for myself and save money with HSAs?
A health savings account (HSA) is an investment vehicle set up to put aside money tax free to pay the expenses of health care. HSAs, created under the Medicare Prescription Drug and Modernization Act of 2003, HSAs allow people who have health plans with high deductible (HDHPs) to save money tax spending free health care . HSAs may be established by any qualified person covered by an HDHP.
Who can create an HSA? In general, if you are covered under an HDHP, you are eligible to establish an HSA. In 2007, a health plan qualifying HDHP (1) has an annual deductible of at least $ 1,100 for individual coverage or $ 2,200 for family coverage, and (2) limits on annual expenses out of pocket (for example, co-pays, deductibles) to $ 5,500 for individual coverage and $ 11,000 for family coverage.
You will not be eligible to open an HSA, even if you are covered under an HDHP, if one of the following conditions:
You are already covered by a non-HDHP, including a comprehensive major medical plan, a plan sponsored by your employer or your spouse, or a prescription drug plan or a rider with a franchise with little or no deductible. (Some health plans are exempt from this provision, including dental or eye care insurance, long term care insurance, disability insurance and insurance against accidents.)
You can be claimed as a dependent on the return of another person income tax.
You are entitled to Medicare coverage (ie you 65 years or older), and enrolled in Medicare.
o be considered an HDHP, coverage of family planning offer must state that no payment can be made from the plan for every person (except the exemption for the provision of preventive care for a franchise that n did not need to apply) until the family deductible is met.
If your spouse is covered with non-HDHP family, but this plan does not cover you, you can still contribute to an HSA if you are eligible to do so. However, your spouse will not be eligible to contribute to an HSA.
An HSA is a tax exempt trust or custodial account that can be made by any qualified representative or guardian, including a bank, insurance company or a third party administrator. In some cases, this may be the same institution offering the HDHP. You can open an HSA you or, where appropriate, through your employer. Employers may offer HSAs through a cafeteria plan.
You, the members of your family qualifies, or others who wish to do so can contribute to your HSA. If you are an employee, your employer may also contribute to your HSA. Contributions may be made directly or through salary reduction under a cafeteria plan (if offered by your employer). However, no contribution may be made to your HSA once they retire.
Employers who contribute to employee HSAs must generally pay fees comparable to HSAS of all comparable participating employees (the same percentage of the deductible amount or the same amount in dollars). Otherwise, the employer must pay an excise tax equal to 35 percent of actual contributions. An employer may, however, make larger contributions to HSAs nonhighly compensated employees than for employees paid without violating the comparability rule. In addition, the comparability rule is applied separately to part-time employees and does not apply to contributions paid by a cafeteria plan. However, contributions to an HSA under a cafeteria plan are subject to section 125 of the rules of non-discrimination.
For 2007, you can contribute up to $ 2,850 for individual coverage and $ 5,650 for family coverage, your HSA. This annual limit is the sum of the limits determined separately for each Mon
