In 2003, President George W. Bush created the Health Savings Account (HSA) to provide a flexible and tax-free way for people to pay for their own day to day health care expenses while maintaining a catastrophic insurance policy to cover extreme situations. Here are some of the advantages and disadvantages of the HSA to help you decide if opening one might be right for you and your family.
Actually, the concept of the HSA is not a new one: the MSA (Medical Savings Account) was given the green light by Congress just seven years before the HSA. But the main difference between the MSA and HSA is that the HSA mandates that a person maintain a high interest catastrophic policy to go along with the savings account. The HSA was created because people with little need of regular office visits or extensive medical care were being soaked by high premiums for coverage they weren’t even using. Maintaining a health savings account makes great sense for those who are basically healthy and don’t need all of the bells and whistles.
The HSA is owned by the employee and funds are managed by the individual’s bank or credit union; both employers and employees are allowed to contribute up to the government-imposed limit each year. There is also no minimum amount that must be contributed yearly and the savings roll over annually.
There are two caveats to managing health care expenses tax-free through a HSA:
1. The individual must maintain a high-deductible catastrophic policy
2. Any funds removed from the HSA before age 65 must be used for approved health care expenses only.
Having a catastrophic policy in addition to the HSA just makes good sense. A long term hospitalization due to accident can run upwards of a half million dollars or more! It is unrealistic for a person to expect to be able to pay for such an expense out of the HSA alone. Because of the tax privileges associated with the health savings account, the government wants to make sure that any money put there is strictly for health care expenses: health the second caveat.
Advantages
– The Health Savings Account is portable from job to job so there are never any health care problems if you have to make a switch.
– Although the money may be used only for approved medical expenses, there is no government requirement to spend the money. If it is never used, it may remain in the account earning interest until it may be removed by the owner at age 65 to be used for other things.
– Those with a health savings account are not subject to insurance company limitations on which doctors they choose to see: it puts health care decisions under the owner’s complete control.
Before obtaining a health savings account, make sure to consult with an insurance professional to make sure you have an adequate high-deductible policy to go along with it.
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Blue Cross Blue Shield of Illinois . Art Gib is a freelance writer.