What is an HSA?

HSA stands for Health Savings Account, a type of account you can open at a bank, but only if you have a HSA compatible health insurance policy.

Your deposits into this account can be deducted off your income at tax time. The money in the account can be used for any legitimate health care cost. If the money is used for any other purpose, a penalty and the back taxes will be due.

HSA compatible health insurance plans (also known as High Deductible Health Plans or HDHPs) have high deductibles and can offer only preventative services (e.g., check ups and immunizations) before you meet the deductible.

For 2009, HSA compatible health insurance policies must have a minimum deductible of:
$1,150 for individual coverage, or
$2,300 for family coverage.

Maximum HSA deposit limits for 2009:
$3,000 for individuals
$5,950 for a family

Why does the government give you a tax break for deposits into the health savings account?

The theory is that if people are using their own money for office visits and testing, they will be more cost conscious, and will shop around for the best deal for health services. This competition in the marketplace should then help control inflation in the medical field.

In addition, high deductible health plans are less expensive than more conventional policies.

Is an HSA a good idea for you?

If you are more accustomed to paying a small copay for all your health services and cannot imagine being charged more than $25, or so, for an office visit, you are probably not a good prospect for an HSA or HDHP insurance plan.

On the other hand, if you don't go to doctors very often and can appreciate saving several hundred dollars in annual premium costs as well as taxes, you should look into this option.

Disclaimer: This site is offered for informational purposes only and nothing herein should be interpreted as legal, financial or medical advice, for which you should consult a professional.
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