For millions of Americans with employer-sponsored health insurance, it's open enrollment time. Today, Kaiser Health News offers this helpful FAQ on Health Savings Accounts. HSAs, when teamed with a High-Deductible Health Plan, is on the list of choices consumers are looking at. According to the trade group America's Health Insurance Plans, the number of people using HSAs has increased over the last year.
Still, many people can find this option confusing. So, for starters, what is an HSA?
HSAs have two basic elements:
- A tax-preferred savings account where money is set aside by the consumer (employers can also contribute) to pay for medical expenses and prescription drugs.
- A high-deductible health insurance plan. In 2012, that deductible will be at least $1,200 for an individual and $2,400 for a family and as high as $6,050 and $12,100, respectively, according to the Treasury Department.
Any adult with a high-deductible health plan and no other form of health care coverage can establish one of these accounts.
How can consumers benefit from HSAs?
Consumers who participate in HSAs receive certain tax benefits. For instance, individual contributions are tax deductible, and employer contributions also are not counted as taxable income. Account withdrawals, when used to pay for qualified medical expenses, also are not taxed.
Meanwhile, the money inside the savings account belongs to the consumer and funds left over at the end of the year are rolled over to the next year. If he or she changes jobs, the HSA stays with that individual. And though not all high deductible plans work the same way, by law plans have the option to cover basic preventive care, such as vaccinations and annual physicals, even if the deductible has not been met.
When participants turn 65, any remaining funds can be used -- tax free -- for general retirement expenses.
The full story in Kaiser Health News also includes information for employers, then goes on to detail potential drawbacks for people who use HSAs.
Health care policy experts say that while HSAs give consumers control over their medical spending, they are problematic for low-income individuals, especially those with chronic conditions who use the health care system frequently.
As financially friendly as the HSA-high-dedutible plan combination may appear, Paul Fronstin, who directs the health research and education program of the Employee Benefit Research Institute in Washington, said there's a catch: They have a "straitjacket design" in which consumers are responsible for paying the full-dollar amount of their medical expenses until they meet their deductible. This can be particularly burdensome for people with chronic conditions, like diabetes, that requires ongoing care.