Understanding the key concepts of health savings accounts

A Health Savings Account is an account that complements the normal health insurance plans. It is a saving mechanism that lets people save differently for their   health care needs. Health Savings accounts enables the customer to pay for the existing health expenses as well as save for the future medical expenses that the consumer might have to meet after retirement. These saving plans facilitate tax free health facilities.

History of health savings accounts

In the year December 8, 2008, the President of the United States of America signed a Medicare prescription drug, improvement and modernization act. This was originally established with a plan to replace Medical Savings account System.

America’s Health Insurance Plans conducted a survey to ascertain that around four point five million in January 2007 were covered by health plans qualified by HSA.  The distribution of the 4.5 million populations who were covered under this plan was in terms that while 3.4 million were given coverage by employer sponsored plans the rest had paid for their own plan fees.

The Congress capped the deposit limit for health savings accounts to $3,050 for an individual and $6,150 for a family. Irrespective of the source of funding the cap is meant to be followed by all. In the year 2009, the maximum payment was increased to $3,000 for a single person and $5,950 for a family. The cap however was relaxed for the older people above the age of fifty five. They can deposit about $1000 in addition to the normal funds. The deposit limits are subject to change as per the inflation rate.

Benefits of HSAs

1. The funds deposited in the health savings accounts are tax deductible. They provide tax shelter to the working class people who can now save to be ready for the health related expenses that they have to meet in their old age.
2. The amount that is used for medical purpose is tax free.
3. The fund also accumulates interest. The health insurance accounts act as normal savings account. Therefore the amount deposited in the account also attracts interest rates.
4. The money stays in the account and increases with the accumulation of the interest rate from year to year.
5. The money unspent for medical purposes for the financial year rolls over to the next year and adds up to the next year’s deposit. This provides the consumers a substantial amount of cash in hand to meet the medical expenses.

Consumers who have a significant deductible insurance plans can also use the health saving accounts programs to meet the deductible costs of the insurance plan before the coverage process kicks in.