Health Savings Account

Health Savings Accounts (HSAs) are a new savings vehicle created by the Medicare Prescription Drug Improvement and Modernization Act of 2003, which became law on December 8, 2003. HSAs offer a way for people to save money to cover medical expenses on a tax-exempt basis.

To take advantage of an HSA, you must:

• Have insurance coverage through a qualifying high-deductible health plan;
• Open an HSA bank account with a qualified trustee;
• Be under age 65 and not be eligible for Medicare benefits;
• Not have coverage under another health plan, such as a spouse’s plan; and
• Not be claimed as a dependent on someone else’s tax return.

The Bank Account:

An HSA is much like an IRA, except that it’s for medical expenses. Both individuals and employers can deposit money into the HSA, but the account belongs to the person for whom it is set up, not the employer. Account holders can let their unused balances build up from year to year, invest their account funds, earn investment income on the balance, and withdraw money for eligible medical expenses, all tax-free. They can use HSA funds to pay for care while they’re meeting their health plan’s deductible, or pay for qualified health-related expenses that aren’t covered by their health plan, such as dental care vision services, and over the counter medications. In addition, HSA funds can be used for certain types of insurance premium, including long-term care coverage. HSA trustees are typically banks, and most offer access to account funds via debit cards and checks. Deposits can usually be made by payroll deduction through the employer, by electronic transfer from another bank account, or by submitting a check and deposit slip.