PrintHealth savings accounts provide an interesting approach to health care planning. And for business owners wishing to save on health costs for employees while still offering some coverage, HSAs may be a good solution.
Considered by some to be a type of “medical IRA,” the HSA is designed to cover lower-cost routine medical needs. It is used in conjunction with a high-deductible health plan, which covers major medical costs. Until an insurance deductible is met, an HSA provides tax-free dollars to be used for eyeglasses, medications, routine doctor visits, lab expenses, psychoanalysis, and so on. The idea is to grow the money in the account so in time it will cover the deductible, while your annual contribution can grow through investments.
Whether you need an HSA depends largely on what type of insurance, if any, you currently have. If you're self-employed and are shopping for a health plan, HSAs offer some benefits, including tax-deferred savings. As of 2008, you can contribute tax-free up to $2,900 for an individual and $5,800 for a family. These numbers are indexed annually. In addition to the tax benefit, you can contribute to your HSA for a given year up to April 15 of the following year, when your tax return is due. Contributions can come from the account holder or the account holder’s family.
One significant advantage of an HSA is that unlike a flex spending account, where you must spend all the money each year or lose it, HSAs allow you to carry the balance over and build up your savings. However, a flex spending account does not require you to have a high-deductible health plan.
For a couple who has neither health insurance nor kids, an HSA may be a useful means of putting away savings that will grow tax-free. So by the time there are kids, and they're scraping their knees and requiring school physicals, there will be a substantial amount of money in the account to cover the deductible.
For families with young children and numerous medical needs, an HSA is probably not the best choice because of the high-deductible requirement. In addition, there will be a very limited opportunity for savings to accumulate with the ongoing medical costs associated with having young children.
For more information on HSAs, visit the U.S. Department of the Treasury Web site.
