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My company is rolling out a Health Savings Account program for all of its employees. What is a health savings account and why is it beneficial for me?

Problem: Healthcare Costs

If you think that increasing healthcare costs are problems reserved for your employer or insurance companies, you are wrong. Most employees pay 10-90% of their healthcare costs, when all of the costs are included. Healthcare costs have risen 8-10% each year for the past three years and is slated to grow two to three times the rate of inflation for the foreseeable future. All it takes is a quick review of your last few pay stubs to see that the insurance companies are passing down the costs of healthcare to employers. These employers in turn are passing the costs off to you.

Health Saving Accounts:

Health Savings Accounts (HSAs) were established as part of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. It is a hybrid between health insurance and retirement programs. It was established so that savings used for medical expenses for you and dependents would be free from taxes. The qualified medical costs include: medical physicians, dental and optic care, chiropractic care, long term health care, Medicare Part A and B, and Medicare HMO insurance premiums.

You can contribute to the HSA only if your insurance company has an accompanying deductible of at least $1,100 for individual coverage or $2,200 for family coverage. The current contribution limit per year is $2,850 for individual coverage or $5,650 for family coverage. For people over 55, the contribution limit goes up by $800.

All contributions are pretax which provides a tremendous tax advantage. If the savings are used for qualified medical expenses, the entire amount in the account can be withdrawn free of taxes. If the account is used for non qualified expenses, the withdawal is taxed as income and a 10% penalty is put n place if you are under 65 years old. At age 65, Medicare kicks in and withdrawals are only taxed as income at your given tax rate at the time. All the gains, interest, and dividends in a health savings account are sheltered from taxation.

Unused balanced roll over from year to year. To many employees, the health savings account is viewed as a retirement plan. This provides them a tax advantaged way to save for retirement outside of their Individual Retirement Account (IRA) or 401(k).

Beth Weil

Last Modified April 3, 2010 @ 2:59 pm
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