While the politicians in Washington fight over how to reform health care, individuals and business owners are dealing with ever-escalating medical costs. Employers continue to look for ways to reduce their cost of medical insurance while still providing medical benefits to their employees.
Many employers are choosing to go the route of Health Savings Accounts (HSA). The HSA was created as part of the 2003 Medicare Act and have gradually become a viable alternative to traditional health care plans.
An HSA can be opened for anyone who has high deductable health insurance. That means that for 2009, the annual deductable cannot be less than $1150 for individuals and $2300 for families.
Participants are permitted to make tax-exempt contributions to an HSA equivalent to their annual insurance deductable with a maximum of $3000 for individuals and $5950 for families. For those who are 55 or older, they make an additional $1000 “catch-up” contribution. Many companies will make at least some form of contribution to an employee’s HAS. Many even contribute the maximum amount.
Benefits of an HSA are numerous. Health Savings Accounts are wholly owned by the individual, even if their employer has made contributions. This means that they are fully transferable in the event of a job change. The tax benefit for an HSA can be significant. Contributions and withdrawals are tax free, as long as the funds are used for qualified medical expenses. Interest paid on an HSA is earned tax free.
Unlike some other medical savings accounts, unused funds will remain in the account year after year. For those who access their HSA funds sparingly and maintain their annual contributions, a substantial savings by retirement is likely. Withdrawals from an HSA for non-medical reasons can be made without penalty after the age of 65. Only the income tax on the withdrawals will need to be paid. Non-medical withdrawals prior to age 65 are subject to a 10% penalty.
Health care costs are expensive and deciding on the right type of health care plan can be overwhelming. While HSAs are certainly not right for everyone, they offer many advantages over traditional health care plans.
