Consumer-directed health care plans are here to stay.

Turn your good health into a sizeable nest egg.     Watch our HSA VIDEO.

The Medicare bill that the President signed into law in December 2003 created an exciting new financial vehicle called a Health Savings Account (HSA). This account lets you:

1) Buy an HSA-compatible health insurance policy with a high deductible (e.g., $5000 for family coverage). Minimum annual deductibles are $1,100 for self-only coverage or $2,200 for family coverage. Annual out-of-pocket expenses (deductibles, co-payments and other amounts, but not premiums) cannot exceed $5,600 for self-only coverage and $11,200 for family coverage. Beginning in 2008, the HSA funding limit is no longer linked to the plan's deductible. For instance, a single subscriber may select a plan with a $1,100 deductibe, but still contribute the annual maximum of $2,900, or a family subscriber may select a plan with a $2,200 deductible and still contribute the annual maximum of $5,800.

Policies like this generally offer much lower premiums than standard health insurance policies. The premiums are tax deductible if your are self-employed.

2) Establish a Health Savings Account. You can put the money you save on premiums and the money that you would ordinarily spend out of your own pocket for health care into this HSA. This money also is deductible from your taxes, whether or not you itemize other deductions (e.g., mortgage, charitable contributions, etc.). You can deposit up to the full amount of your insurance policy's deductible into this account every year - but no more than $2,900 annual maximum single, or $5,800 annual maximum family in the 2008 calendar year. The new 2008 maximum annual catch-up contribution is $900 for individuals 55 years of age and older. You can use money from this account to pay expenses below your deductible. Any unused funds roll-over to the next year and accumulate. Your HSA money will always be available without penalty and can be withdrawn tax free anytime if used for qualified expenses.

3) Invest Health Savings Accounts balances in a variety of ways - money markets, CDs, and even certain mutual funds. All of the gains are tax free if used to pay for medical expenses.

4) Save any money that remains in your account for future medical expenses. The money is tax free going in to your account, tax free when you take it out to pay doctor bills and other medical costs and money that you don't spend earns interest tax free. There is no "use it, or lose it rule".  

This may be the ideal time to consider opening a Health Savings Account because of the recently passed the Tax Relief and Health Care Act of 2006 (HR Bill 6111). HSA participants may now set aside extra money (tax-free) and do trustee-to-trustee transfers from their IRA, FSA, or HRA accounts to their HSA accounts without penalty.

It is estimated that about 40 million Americans will establish HSA accounts in the next few years. Different families have different needs. HSAs may be right for your family. HSAs give you more options to make your health care more affordable. 

For more information about HSAs and to watch a video showing how they work, go to HSAcenter.com .

For recent articles on HSAs go to our News page.