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Health Savings Accounts (HSA)

A Health Savings Account (HSA) is essentially a new form of a Medical Savings Account (MSA), but with several changes. The first and foremost of these is that anyone can qualify for an HSA, given that they also have a high deductible health plan (HDHP). The HSA is designed to help employees pay for current and future medical expenses.

Before legislation was approved in December 2003 to install HSAs, only employers with 50 or fewer employees could offer MSAs. After the legislation, many people who had not had health insurance previously from an employer could reap the benefits of an HSA.

A HDHP will cost less than most traditional health insurance plans and the HSA has great tax benefits for the employee. HSA money can be used for tax-free medical expenses including an insurance deductible. The minimum deductible in 2006 for a single HDHP is $1,050 while for a family it is $2,100. The maximum out of pocket deductible is $5,250 for single coverage and $10,500 for a family. Those figures are estimated annually for inflation.

Money in a HSA is quite similar to that which would be in an Individual Retirement Account (IRA) because money can grow tax-free and be withdrawn without any penalties at the age of 65. Regular income tax does apply, however, at that point. Withdrawing money before the age of 65 usually comes with severe penalties.

There are several benefits both to the employer and the employee regarding HSAs. Most Americans do not use more than the cost of their health insurance plans in a year, so the employer can usually benefit from saving money on health coverage. In addition, HDHPs are generally less expensive than regular health insurance plans.

Benefits for the employee, other than the health coverage itself, include the freedom to choose one's own physician, whereas some other plans, such as HMOs, do not allow that choice. The account is also the personal property of the employee, so if they leave their job, the HSA can follow them to a new one. Either way, it remains their asset.

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