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Health Savings Accounts for High Deductible Health Insurance Coverage

What is a Health Savings Account?

A health savings account (HSA) is a type of savings account used to pay for medical expenses such as deductibles and co-payments. You can set up and put money into an HSA at a local or online bank. The health plan that you choose may also have a relationship with a bank that offers HSAs. With an HSA, you can withdraw money tax-free for qualified medical expenses.

You can also use your HSA to pay for medical expenses that aren't covered under Healthy NY, such as dental and vision care and over-the-counter medication. For 2009, you can contribute up to $2,900 for individual coverage and $5,800 for family coverage. The federal government sets these amounts, and they change yearly. You can deposit money into the account in one lump sum or at any frequency that is convenient. You can also roll over money from an individual retirement account (IRA), flex spending account (FSA), or health reimbursement arrangement (HRA) on a one-time basis. It is very important to save all receipts if you have an HSA.

The Nuts and Bolts of Health Savings Accounts

HSAs have several tax advantages:

• The money that you put into the HSA is generally tax-deductible from your income, even if you do not itemize deductions.
• The money in the HSA can earn interest tax-free.
• As long as you use the money in the HSA for qualified medical expenses, then you are never taxed on it.

Money that you put in your HSA is portable, and if you do not use all of the money by the end of the year, then it rolls over automatically for use in later years.

If you are a sole proprietor, you may not contribute to an HSA on a pre-tax basis and may not take the amount of your HSA contribution as a deduction for Self-Employment Contributions Act (SECA) purposes.

However, you may contribute to an HSA with after-tax dollars and take an above-the-line deduction.

If you open an HSA, then you will be responsible for any account fees that your bank or financial institution may charge. It is important to comparison shop before opening an account. Banks, credit unions, and other approved companies may offer HSAs.

Visit the U.S. Department of the Treasury at www.treas.gov for more information on HSAs.

Is the High Deductible Health Plan with Health Savings Account Right for You?

Before choosing the HDHP option, you should make sure that you will be able to fund your HSA and meet the deductible. Remember that if you choose the HDHP, full coverage does not start until you meet the deductible. You should carefully compare the standard plan with the HDHP before making a decision.