What is a health savings account?

Section 1201 of the Medicare Drug Bill, Public Law No. 108-173, added Section 223 to the Internal Revenue Code to permit eligible individuals to establish Health Savings Accounts (HSA’s) for taxable years beginning with 2004. Health Savings Accounts are available to anyone with a deductible of at least $1,200 with a maximum contribution of $3,050 for an individual plan with annual out-of-pocket expenses (deductibles, co-payments, not premiums) not exceeding $5,950 (Family plans: at least a $2,400 deductible with a maximum contribution of $6,150 and out-of-pocket max of $11,900).

Any unused amounts at the end of the year in HSA’s are allowed to grow tax-deferred, which is much better than the “use it or lose it” feature of a flexible spending account.  

 Americans who have high-deductible health insurance plans (HDHPs) in the amounts specified above may deposit up to the maximum contribution above in a pre-tax account and may use that money to pay for any IRS-approved medical expense, plus three types of insurance premium: COBRA premium, health insurance premium only if the applicant is receiving unemployment, and “qualified” long-term care insurance premium, which means the age-based amounts. As of 2007, the month-to-month accumulation is gone; i.e. if one is eligible in December, he/she can contribute the entire allowed amount for the entire year.

 In addition, individuals over 65 may use HSA dollars to pay premiums for Medicare Part A or B, Medicare HMO, premium for employer-sponsored health insurance (including retiree health insurance), but not Medicare supplement premiums. (Note: Americans who are eligible for Medicare can’t set up a Health Savings Account, but if they set one up prior to becoming eligible for Medicare, they can keep it – they just can’t make new contributions after becoming Medicare-eligible.)

Medicare Part D

Posted in: Consumer