What’s all the Hype about Health Savings Accounts?

Date October 22, 2008

I saw this headline in today’s Los Angeles Times: Health Insurers Reinvent Themselves as Money Managers.

The article goes on to say that several insurance companies are rushing to open banks as more Americans open health savings accounts, a tax-sheltered way to pay medical bills. Managing that money is more profitable than offering health insurance. Interesting, yes? So what is a Health Savings Account anyway? Read on…

A Health Savings Account, or HSA, is an alternative to traditional health insurance; it is a savings product that offers a different way for consumers to pay for their health care. HSA’s enable you to pay for current health expenses and save for future qualified medical and retiree health expenses on a tax-free basis. The HSA doesn’t have a “use it or lose it” rule; your money will roll over to the next year.

If you’re on a high-deductible health plan and want to get a possible tax break, you should consider opening a HSA. It allows you to make tax-deductible contributions, and the earnings in your account grow tax-free. As long as your distributions are for qualified medical expenses, you will not pay any penalties or taxes. Remember, though, always consult your tax advisor before opening this account.

Am I Eligible?
To make contributions to a HSA, the account owner must meet all of the following requirements:

  • Must be covered under a High Deductible Health Plan (HDHP)
  • Is not covered by any other health plan that is not a HDHP
  • Is not enrolled in Medicare
  • Is not actively using a Flexible Spending Account (FSA)
  • Cannot be claimed as a dependent on another person’s tax return
  • Is less than 65 years old. Individuals may not make regular contributions to a HSA in or after the tax year they reach age 65.

What are Qualified Medical Expenses?

  • Actual medical expenses, including doctor visits, prescriptions, transportation to get medical and dental care.
  • Long-term care insurance
  • Healthcare coverage when unemployed
  • Certain continuation-of-benefit healthcare coverage

Need money to start your HSA? Do you have an IRA? You can make a one-time transfer from an IRA (Individual Retirement Account) to a HSA, with no penalties or taxes.

Talk to your insurance agent and ask them if it makes sense for you to be in a high deductible health plan. If it does, it might be to your advantage to open a HSA. You can open it with the minimum balance required and make monthly contributions.

Go here for more information including contribution limits and what qualifies as a HDHP.

And finally, just a quick little note about the fact that insurance companies are opening banks. In today’s economy, does it really make sense to open a new bank? Do they have the experience and knowledge to do this successfully? Personally, I would rather trust my money to a financial institution whose sole purpose is to provide financial products and services, not as a “side business” as these insurance companies are.

Questions or Comments? E-Mail me at blogger@matadorsmoneymatters.com.

Category Posted in Savings

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