Health Insurance Articles
Using A Health Savings Account When You Have Health Insurance
2010-08-18
Health savings accounts provide a way to beat the tax man while making sure your health insurance coverage is what you need for yourself and your family. The money deposited in a bank for a health savings account grows without creating a tax liability. You don't pay taxes on the money deposited, and there is no duty imposed if the account money is used for qualified expenses.
There are some restrictions connected with health savings accounts. The money deposited must only be used for health care purposes. Those people not disabled or over 65 will incur a 10 percent tax penalty if they use the money for other than health care. Limits apply to the amount of money that can be deposited during the current year--$3,050 to cover an individual, or $6,150 to cover a family. People 55 or older can add an extra $1,000 to a health savings account. The accounts are available to all, regardless of income. Employers can also contribute to the accounts. An employer's contribution to your health savings account is not counted as income for tax purposes.
In order to qualify for a health savings account, you must have existing health insurance coverage that has an annual deductible of at least $1,200 for yourself and $2,400 for family coverage. If your health insurance is provided by an employer who doesn't offer this kind of plan, then you cannot establish a health savings account. While most health insurance plans don't cover the costs of over-the-counter medicines, a health savings account can. Money spent for those medicines can be qualified as a legitimate savings account expense and are tax free.
The savings accounts can be used to pay for health care costs that meet and surpass your deductible for the year. The fun comes if there is money left in the account when the year is over. Those funds can be invested for health care costs that might occur in retirement or during a COBRA period if you lose employment. Also, once you turn 65 and qualify for Medicare, the money can be used for other things. That money will be taxable as income but won't create any other obligations.
The original thought behind health savings accounts was to create a plan that encouraged people to look for the best deals in health care, and not spend more than necessary for good coverage. That search for competitive costs would supposedly reduce health insurance rates, while offering a tax break with real substance. The tax savings are designed to appeal to non-insured people, and hopefully will encourage them to latch onto high deductible health insurance programs.
