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Savings Accounts (HSAs) were introduced into law in January, 2004.
They offer many advantages over medical savings accounts (MSAs) and
should not be confused with MSAs.
The HSA is a tax sheltered savings account that functions much like
an IRA, but is reserved for medical expenses. It allows individuals
to pay for current health expenses and save for future qualified
medical and retired health expenses on a tax free basis. Unlike an
IRA money can be withdrawn from an HSA at anytime.
Deposits are 100% tax deductible and can easily be withdrawn by
check or debit card to pay medical expenses with tax free dollars.
Individual consumers can sign up for HSAs, but the most common
procedure is to sign up with a plan offered by an employer.
To be eligible for a HSA, an individual must be covered by a High
Deductible Health Plan (HDHP). A HDHP is a health insurance plan
with a minimum deductible of $1,000 (self only coverage) or $2000
(family coverage).
An employer can pay for a HDHP for each employee and give the
employee cash to put into his/her savings account. This is in lieu of
paying an insurance company a much higher premium for low-deductible
health insurance on the employee.
The money can build up in the tax-favored savings account and
transfer from one year to the next. The employee decides when to
spend the money in the account on qualified medical expenses. If the
money is depleted the HDHP takes over.
HSAs are available from banks and insurance companies. It is
recommended that every CEO at least look into HSAs. Keep in mind,
however, that insurance companies don't have a strong motivation to
sell HSAs as they make less money on HSAs than they do on regular
health insurance.
For more information go to: http://www.ustreas.gov/offices/public-affairs/hsa
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