A health savings account (“HSA”) is a bank account that is designed to be used in conjunction with a high deductible health insurance plan. The competitive rates on a high deductible plan make it one of the best options for affordable health insurance. HSA coverage plans are ideal for people who are looking for major medical protection.
How Does an HSA Work?
An HSA insurance plan is suitable for people who don’t require frequent office visits, but are mainly concerned about not having to pay thousands of dollars in the event of a catastrophic situation. Under most HSA plans, the policy benefits don’t apply until you satisfy the deductible. An exception would be preventive care services. Those are free. Should a major medical incident arise, you would first pay the deductible amount, then you would either be fully covered or pay an additional discounted fee, depending on the plan you are on.
Opening a health saving account at a bank is optional. Monies in the account are designated for medical and dental expenses. If the fund is used for something other than qualified expenses, taxes and penalties would apply. Also, you could earn interest or dividends on the HSA fund, without it being subject to federal taxes.
Who Can Best Benefit from an HSA Plan?
People who either rarely need medical services or those who are anticipating a major medical services can take advantage of the low premiums and still have a manageable ceiling on how much they would pay.
An example of someone anticipating a major medical incident would be a couple who is planning to have a baby, providing the particular HSA plan includes maternity benefits. For Kaiser Permanente in California, a popular health savings plan is the $0/1500 HSA Plan. This Kaiser HSA plan covers routine prenatal care at no charge. Hospital delivery and other pregnancy-related services are subject to the $1500 deductible. After the deductible is reached, then, you pay discounted fees up to the maximum-out-of-pocket limit. In 2011, the most you would pay for medical services in a calendar year is $3,000.
Health savings accounts may also be a good fit for young adults away at college, providing the child does not require ongoing or frequent medical treatments. The HSA benefits would offer insurance protection for medical services such as emergencies or hospitalization. For added peace of mind, the parent could open a health savings account to help take care of potential medical expenses.
A high deductible health insurance plan is not, usually the best option for newborns since babies often need more doctor visits and prescriptions.
By and large, the premium for a health plan savings is competitive. When shopping for an affordable insurance plan, compare the premium savings with what you would be spending for services and medicines that will now be subject to a deductible.
What are the Contribution Limits in 2011?
The contribution limit for health savings accounts is unchanged from 2010. The maximum yearly contribution will continue to be $3,050 for a single member, or $6,150 for a family. Contributions may be made until the annual tax deadline of April 15, 2011.
What Regulations Changed in 2011?
Starting January 1, 2011, the penalty for using HSA funds for non-qualified services increased from 10 percent to 20 percent. Also in January, over-the-counter (“OTC”) medicine will be a qualified expense only if prescribed by a doctor.
Medical equipment and supplies, such as crutches, bandages, and diagnostic devices are still HSA-qualified. Insulin is also still eligible, even if purchased without a prescription.
The following will no longer qualify for tax-free reimbursement: Acid controllers, allergy and sinus medicine, antibiotics, anti-diarrheals, anti-itch and insect bite, anti-parasitic treatments, baby rash ointments/creams, cold sore remedies, cough, cold, and flu, digestive aids, feminine anti-fungal/anti-itch, hemorrhoidal preps, laxatives, motion sickness, pain relievers, respiratory treatments, sleep aids and
sedatives, and stomach remedies.
For more information regarding health savings account regulations, see IRS Publication 969 by going to www.irs.gov.