Health Savings Account Basics

Insurance Advisors has been helping Colorado residents save money on their healthcare expenses with MSAs (Medical Savings Accounts) for years. Then, starting January 1, 2004 (when the new HSA law took effect), this option became a lot more popular with new plan options. HSAs (Health Savings Accounts) are similar in nature to MSAs, but HSAs have much fewer restrictions.

What is a Health Savings Account? 

An HSA is a lot like an IRA, except that money is used to pay for qualified health care costs.* HSA participants enroll in an inexpensive high deductible health insurance plan. Then, a tax deductible savings account is opened to cover current and future medical expenses. The money the participant deposits, as well as the earnings, is tax-deferred. The money can then be withdrawn to cover qualified medical expenses tax-free, with unused balances rolling over from year to year.

What is the difference between an MSA and an HSA? 

HSAs are an improvement on the old MSA program. HSAs can provide all of the following that MSAs didn't: 

• Everyone with a qualified high deductible plan is eligible to participate 
• HSA's are permanent and portable 
• Larger tax-deferred contributions are allowed 
• More deductible options 
• HSA's can be funded by an employer, by the employee, or by a combination of both

The 2 parts of an HSA plan... 

Part 1: The Qualified High Deductible Health Insurance Policy 

For 2006, a high deductible insurance plan is a health plan with a minimum deductible of $1,050 for self-only coverage and $2,100 for family coverage, which are still relatively low. The maximum out-of-pocket (including deductibles and copays) for allowed costs must be no more than $5,250 for self-only coverage and $10,500 for family coverage in 2006 and preventive care can have first dollar coverage. This health insurance plan may be purchased without the savings account if you want. By doing this, you would just have a high deductible health insurance plan with relatively low premiums. 

Part 2: The Tax-Exempt Individual Savings Account 

The savings account is designed to cover routine medical expenses and provide savings. In any given year you may deduct the amount you contribute into your HSA from your gross income. The higher your deductible, the more money you can deposit into your HSA. The maximum you can contribute per year is $2,700 for self-only coverage and $5,450 for family coverage in 2006, excluding "catch up" contributions for those 55 years and older. If your employment situation changes, you can still keep all of the money in your HSA, even if your employer contributed to the plan. You may spend the money in your HSA on anything the IRS Publication 502 considers a legitimate HSA health insurance expense. There are many alternative treatments, dental, vision, and quite a few surprising expenses which are considered legitimate.

Don't put it off! 

By setting up an HSA now you can start accumulating literally hundreds of thousands of dollars by the time you retire in your account. This is money that would have gone to the insurance company, but instead was put into your custodial account. When you compare HSA premiums to the price of a typical Colorado health insurance plan, you will really see how much you can save.

Let us get you started NOW 

If you have been putting off getting an HSA, we will make it easy for you. All you need to do is request HSAs Colorado information and we will do the work for you. HSA premiums are significantly lower than traditional fully-insured plans with co-pays and low deductibles. The money saved on premiums may be used to fund the health savings account. In any given year, there is a good chance that the deductible won't be met, so the money left over in your account is yours to keep. And, you still have very low exposure because once you meet your deductible, the insurance company pays your medical expenses. Both the HSA contribution and catch up contribution must be pro rated based on the number of months of the year a taxpayer has an HSA Qualified High Deductible Plan.

"Catch Up" amounts for those 55 and older 

If you are 55 or older and are just starting an HSA, you are allowed to make "catch up" contributions to your account until you enroll in Medicare. In the year you enroll in Medicare, you are required to pro-rate the catch-up contribution for the number of months you had an HSA qualified high deductible health plan, before the month your Medicare enrollment is effective. Here are the allowable "catch up" contributions:

• 2006: $700
• 2007: $800
• 2008: $900
• 2009 and after: $1000

*See IRS Publication 502 for a list of qualifying HSA expenses. All terms and conditions of coverage, including benefits and exclusions, are contained in the certificate, which shall control in the event of a conflict with this overview. Insurance Advisors are not engaged in rendering tax, investment or legal advice. Federal and state regulations are subject to change. If tax, investment or legal advice is required, seek the services of a licensed professional.

Copyright © 2006 Insurance Advisors Agency - The information provided on this website and by Insurance Advisors is for our clients' informational purposes only and does NOT imply insurance coverage or guarantee price.  Information provided may be inaccurate or out of date.