What Are Health Savings Accounts?:

In 2004, the United States Congress announced a new plan for health savings. This new plan is called a Health Savings Account, and it is intended to provide consumers with a way to save on their health care costs and reap tax benefits at the same time.

This savings account is allowed to accrue interest, tax-free, for as long as you keep your account. Although there are limits as to the amount that you are allowed to deposit into your account each year, the overall value of the savings account can increase, depending on how you decide to invest it.

You will need to have a health insurance policy that is eligible for a health savings account in order to take advantage of these benefits. Most HSA eligible health plans are called high-deductible health plans. The minimum deductible for HSA eligibility is $1000 for a single person and $2000 for a family. If your current health insurance plan deductible meets this requirement, you should check with your insurance agent or representative to discuss your HSA options.

Once you have set-up a health savings account, you will then have an administrator, who will be in charge of taking care of your account for you. This administrator might be with your health insurance company, or a third-party company and will be responsible for taking several health savings accounts and handling them as their holders wish.

There are four different options for investment with your health savings account. The first is a simple interest bearing account, which is similar to a regular savings account. There is much less risk with this option, but your chances of increasing your savings account are much smaller. If you need more interest than the simple interest bearing account, the next option is a CD type of account, which is very similar to your normal CD account with your bank. You will earn a set amount of interest for your savings account over a set-amount of time.

If you are willing to take a little more risk, the next two types of investment may be more suitable for your health savings account. You will have the option of selecting a money market account or a mutual fund account. It is important to understand how these investment plans work before you make your final decision. Check with your plan administrator if you are uncertain of any risks that you may be facing.

You will be issued either a checkbook or a debit card that will be tied to your health savings account. Any time you have to pay an insurance premium, purchase a prescription or pay for a health care service, you should use this method of payment. You will not be able to take advantage of your health savings account if you pay by any other means. The money that is saved in your account is to be used for these purposes only and may not be used for frivolous or unnecessary expenses.

Each year you will be able to deposit a set-amount of money into your health savings account. If you are single, this amount is less than $2650 or your deductible, whichever is the lesser amount. If you have a family health savings account, this changes to $5250 or your deductible, again with the lesser amount setting the standard.

This amount of money can accrue interest, tax-free, as we mentioned earlier. You are only limited on the amount of money you can contribute each year, not on the amount that your account earns in interest.

Your contributions to your health savings account are not tax-deductible, if you itemize your deductions. However, if you do not plan to use line-by-line deductions on your taxes, you may deduct your contribution, as long as it was less than the set contribution amount.

Although this plan is new, the benefits for Americans are increasing. If you have any questions about your health savings account, take some time to discuss your options with your insurance company or your health savings account administrator. They will be able to assist you in finding out how your health savings account can bring you more savings on your health care needs.

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