HSA – Health Savings Account

The health savings account (HSA) was introduced in 2003. There are really two sides to an HSA plan: the savings account, usually referred to as the HSA, and the health plan.  The HSA is a tax advantaged medical savings account. Savings can be used  to pay the deductible of the corresponding  High Deductible Health Plan (HDHP). The HDHP must meet specific guidelines to qualify for HSA status.

There are some similarities between an HSA and a flexible spending account (FSA). Employers don’t have  to fund either the HSA or the FSA. HSA’s allow deposits up to the maximum contribution limit, set annually by the IRS.  For the year 2010, the amount  is $3,050 for individual coverage,  and $6,150 for family coverage, and includes both employee and employer contributions.

Unlike FSAs, the unspent HSA funds roll over each year. Contributions, as well as interest earned, remain free from taxes. Disbursements are also tax free, provided they are used to pay qualified medical expenses.

By investing in a health savings account, employees get a tax advantaged account that stays with them. They may continue to contribute as long as they remain covered by a qualified HDHP.

Qualified HDHPs are very different to “traditional” health plans. Because of the differences, some employees may be initially reluctant to embrace them. We will look at these in our next HSA post.

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