Get To Know Health Savings Accounts
Ever heard of a Health Savings Account (HSA)? An article in the Observer-Reporter Online looks at Health Savings Accounts and some creative ways that they can be used. In fact, these are a great way to allow you to accumulate tax-free dollars to pay for health costs, now and in the future.
You heard that right -- tax free. What happens with a health savings account is that you move dollars from your pay into the account before any taxes are calculated on your income. Tax will be paid only on what's left after you've moved money into your health savings account; in other words, you pay on the net of your income, after you've already designated certain dollars for health expenses. The best part is that you can then use the money in your health savings account to pay for virtually any health-related expense, whether that's for copays at doctors' offices, prescription and nonprescription medicines, some alternative medicine practitioners as well as regular hospital services not covered by insurance.
Some financial experts consider HSAs a potential way to save money for a variety of health care costs, including money for health care in retirement. Why? Well, balances retained in a Health Savings Account can normally be rolled over from year to year, allowing you to build up a larger and larger balance in that account for costs in the future.
There are ways to save on health costs; however, these only take you so far. Medical care costs continue to rise; insurance premiums continue to rise. As a result, many employers have gone to high deductible plans. Health Savings Accounts make it easier for people to live with health insurance policies with high deductibles. These types of policies tend to provide less coverage because of the high deductible. The Health Savings Account can help the individual live with this trade-off, while maintaining vital insurance coverage for medical catastrophes.
Americans are getting the message about HSAs. In fact, there were 3.6 million HSA accounts at the end of 2006 with $5.1 billion in deposits. This was a huge jump from the end of 2005, when there were 1.1 million accounts and $1.2 billion in deposits.
While Canadians can also take advantage of HSAs, the rules are different. In most cases, you'll have to use up your balance in your account in the year that you deposit the money. However, it's still a great way to get tax free dollars to pay for things that are not covered on your health insurance, including alternative medicine.
For Americans, I'd say that Health Savings Accounts are a must, even if you have good insurance. Remember, these are tax-free dollars for your health care! Save them up and keep them for your retirement years, when health costs typically escalate. You'll do yourself a favour.
Monique L. Attinger