It’s no secret that our nation’s health care costs are skyrocketing to unprecedented heights. Consider that U.S. health care expenditures surpassed $2 trillion in 2006. Luckily, health savings accounts (HSAs) are providing relief for some citizens.
Created under the Medicare Modernization Act of 2003, these increasingly popular savings plans allow consumers to use tax-free savings to cover medical costs while giving them more control over their health care needs. Consumers with HSAs can choose their own doctors and even shop around for the best deal on medical services — all while earning some much-needed tax breaks.
Although HSAs are packed full of advantages, these accounts might not be the best option for everyone. Before settling on an HSA, you should determine whether one of these accounts fits your budget and lifestyle. Here are a few more details that may help you decide if an HSA is right for you.
Many consumers don’t realize that HSAs must be accompanied by a qualifying high-deductible health policy (HDHP). An HDHP typically requires a deductible of $1,100 annually for a self-only plan and $2,200 annually for a family plan. Fortunately, higher deductibles usually translate into lower premiums. However, because of the higher out-of-pocket costs, these plans may not be the best option for families with frequent health issues or for those on a tight budget.
Many employees are attracted to HSAs because they are “portable.” In other words, you can keep the accounts no matter where you work or even if you don’t work at all.
Additionally, unlike Flexible Spending Accounts that have a “use it or lose it” rule, the dollars in an HSA roll over from one year to the next. This gives consumers the opportunity to accumulate a great deal of money in an HSA over time. Account holders can then tap into these large accounts during their retirement years when they might need it most.
AN ARRAY OF SERVICES
With an HSA, you can withdraw your money any time to pay for qualified medical expenses without owing taxes or penalty fees. You can use these dollars to fund a wide variety of medical services, including services not covered by your HDHP, including:
- Dental care
- Over-the-counter medication
- Doctor services
- Hospital services
- Lab expenses
- Physical therapy
- Nursing home expenses and insurance premiums
- Artificial limbs
- Vision services, including glasses and contacts
- Chiropractic services
SIGNIFICANT TAX BREAKS
Employers can make tax-free contributions to an HSA, and the account owner’s contributions are tax deductible. For 2008, you can contribute a maximum of $2,900 to an HSA for yourself or $5,800 if you are covering your family. If you are turning 55 by the end of the tax year, you can contribute an additional $900 this year. However, you are not eligible to contribute to an HSA if you are covered by Medicare.
Since first becoming available in 2004, HSAs have continued to grow in popularity with U.S. consumers. These accounts are attractive to both employers and individuals because of the many benefits they offer. Employers enjoy cost savings through the high-deductible plans connected with HSAs, and employees can keep their HSA whether they change jobs or stop working altogether.
As with any financial savings plan, you should look more closely at HSAs before opening up an account. To determine if an HSA is your best choice, you might want to talk with one of our financial professionals.