START WITH THE BASICS: HSAs AND HDHPs

You’ve read and heard a lot about Health Savings Accounts, or HSAs, but what exactly are they?  In a nutshell, they are an alternative to traditional health insurance that offers tax advantages and greater control over your medical expenses. With an HSA, you can pay for current health expenses—and save for future qualified medical and retiree health expenses—all on a tax-free basis.

To open an HSA, you must be covered by a High Deductible Health Plan (HDHP).  Once you’re enrolled, you own and have complete control over the money in your HSA. You make the decisions on how you want it spent, not a third party or a health insurer. You also get to decide how and where you want to invest this money to grow your account.

Features of an HSA include:

• Your own HSA contributions are tax-deductible.
• Interest earned on your account is tax-free.
• Withdrawals for qualified medical expenses are tax-free.
• Unused funds and interest are carried over, without limit, from year to year.
• You own the HSA and it is yours to keep—even when you change plans or retire.
• Your HSA is administered by a trustee/custodian.

HSAs and HDHPs
HSAs and HDHPs go together like peanut butter and jelly.  An HDHP provides traditional medical coverage and an HSA is a tax-free way to build savings for your future medical expenses. Together, they give you greater flexibility and control over how you use your health care benefits.

The HDHP features higher annual deductible's than traditional health plans. For 2010, the minimum deductible will be $1,200 for singles and $2,400 for families. Depending on your HDHP, you may have the choice of using in-network or out-of-network providers. Usually, using in-network providers will save you money. Except for preventive care, you must meet the annual deductible before the plan pays benefits. Preventive care services are generally paid either before you meet your deductible, after you meet a smaller deductible or on a co-payment basis. When you enroll in an HDHP, the health plan determines if you are eligible for an HSA.