Have You Considered a Health Savings Account?

These days almost everyone is thinking of ways to saving money -- especially on healthcare costs. One of the hot new ideas that is growing in popularity is the Health Savings Account (HSA).

A Health Savings Account allows you to pay for health care and also set up a fund that can be used as a savings account. And, money deposited in the HSA is tax-free.

In theory, HSAs should help to control healthcare costs because it assumes the consumer will be more discriminating about spending their own money on health care-related expenses. 

The HSA plan relies on high deductibles. In fact, in order to set up an HSA, you must first enroll in a High Deductible Health Plan (HDHP). The minimum deductible is $1,100 for individuals and $2,200 for families. HDHPs cost less than traditional healthcare insurance, so the savings can be deposited into your HSA. Once the HSA is set up, you control the HSA account. Do you need to pay for healthcare services for illness or injuries? Do you want to let the money sit and accrue interest? Do you want to invest some of the savings? It's your choice.

If you are considering an HSA, you should shop around. HDHP's vary greatly in their coverage options. Some insurers offer both  HDHP and HSA services. If you purchase a stand-alone HSA that is not linked directly with the HDHP, you will need to provide the proper enrollment forms and show proof of your participation in an HDHP. Some HSA progams provide online enrollment forms.

If you withdraw from your HDHP program, you may continue to use your HSA, but you will not be permitted to make additional HSA deposits.

Many businesses are moving toward HSA healthcare programs for their employees. In 2009 it was estimated 19% of employers were providing HSA plans to their employees. HSA plans are more common among larger companies.

Some additional information on HSAs and HDHPs:

* The maximum yearly HSA contribution is approximately $3,000 for individuals and around $6,000 for a family.

* If you are over age 55 you can make "catch-up contributions" to allow for slightly larger HSA accounts.

* The maximum annual out-of-pocket expense (deductible) for the HDHP is around $5,500 for individuals and $11,000 for families.

* The government allows for a one-time rollover of Flexible Spending Accounts or IRAs into the HSA. The roll-over amount is capped at the annual HSA contribution limit.