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What You Need to Know About Health Savings Accounts - HSAs

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Health Savings Account Basics

An HSA qualified plan is an inexpensive high deductible health insurance plan. They are very simple because they don't have copays on doctors visits or prescription drugs before the deductible. HSA qualified plan participants have the option to open a retirement account that is a lot like an IRA, except that money can be used to pay for qualified health care costs*. The HSA is like a tax deductible savings account with unlimited investment options to cover current and future medical expenses not covered by the plan (like expenses before the deductible, or non-covered expenses like accupuncture or massage). The money the participant deposits, as well as the earnings, is tax-deferred. The money can then be withdrawn to cover qualified medical expenses tax-free, with unused balances rolling over from year to year until the participant turns 65.

The 2 Parts of an HSA Plan

Part 1: The Qualified High Deductible Health Insurance Policy
For 2009, the IRS considers a high deductible health insurance plan a policy with a minimum deductible of $1,150 for self-only coverage and $2,300 for family coverage, which are still relatively low. The maximum out-of-pocket (including deductibles and coinsurance) for allowed costs must be no more than $5,800 for self-only coverage and $11,600 for family coverage in 2009 and preventive care can have first dollar coverage. This health insurance plan may be purchased without the savings account if you want. By doing this, you would just have a Colorado high deductible health insurance plan with relatively low premiums.

Part 2: The Tax-Exempt Individual Savings Account
The savings account is designed to cover routine medical expenses and provide savings. In any given year you may deduct the amount you contribute into your HSA from your gross income. Compare available Colorado HSA account administrators with our handy spreadsheet. The maximum you can contribute per year is $3,000 for self-only coverage and $5,950 for family coverage in 2009, excluding "catch up" contributions for those 55 years and older.

On May 18, 2009, the IRS released the HSA limits for 2010.   The HSA contribution limit for single HDHP coverage increases to $3,050 and to $6,150 for families.  The catch-up amount remains at $1,000 for 2010 and will for future years as well.

Since January 1, 2007, you can contribute the maximum amount into your HSA, no matter what your deductible. If your employment situation changes, you can still keep all of the money in your HSA, even if your employer contributed to the plan. You may spend the money in your HSA on anything the IRS Publication 502 considers a legitimate HSA health insurance expense. There are many alternative treatments, dental, vision, and quite a few surprising expenses which are considered legitimate.

The Importance of Starting Early

Don't put it off!

By setting up an HSA now you can start accumulating literally hundreds of thousands of dollars by the time you retire in your account. This is money that would have gone to the insurance company, but instead was put into your custodial account. When you compare HSA premiums to the price of a typical Colorado health insurance plan, you will really see how much you can save.

When you take the money that would have gone to the insurance company and put it into an interest bearing HSA account, that money will keep building until you turn 65. Do you want to see how much money you could save for retirement by switching to an HSA? Then use our HSA Future Value Calculator.

Let us get you started NOW

If you have been putting off getting an HSA, we will make it easy for you. All you need to do is contact us to request HSA Colorado information and we will do the work for you. HSA premiums are significantly lower than traditional fully-insured plans with co-pays and low deductibles. The money saved on premiums may be used to fund the health savings account. In any given year, there is a good chance that the deductible won't be met, so the money left over in your account is yours to keep. And, you still have very low exposure because once you meet your deductible, the insurance company pays your medical expenses. Both the HSA contribution and catch up contribution must be pro rated based on the number of months of the year a taxpayer has an HSA Qualified High Deductible Plan.

"Catch Up" amounts for those 55 and older

If you are 55 or older and are just starting an HSA, you are allowed to make "catch up" contributions to your account until you enroll in Medicare. In the year you enroll in Medicare, you are required to pro-rate the catch-up contribution for the number of months you had an HSA qualified high deductible health plan, before the month your Medicare enrollment is effective. Here are the allowable "catch up" contributions:

  • 2004: $500
  • 2005: $600
  • 2006: $700
  • 2007: $800
  • 2008: $900
  • 2009 and after: $1000
What is the difference between an MSA and an HSA?

HSA's are an improvement on the old MSA program. HSA's can provide all of the following that MSA's didn't:

  • Everyone with a qualified high deductible plan is eligible to participate
  • HSA's are permanent and portable
  • Larger tax-deferred contributions are allowed
  • More deductible options
  • HSA's can be funded by an employer, by the employee, or by a combination of both

See how HSA's and MSA's differ
*Qualifying Medical Expenses
*See IRS Publication 502 for a list of qualifying HSA expenses. All terms and conditions of coverage, including benefits and exclusions, are contained in the certificate, which shall control in the event of a conflict with this overview. Insurance Shoppers are not engaged in rendering tax, investment or legal advice. Federal and state regulations are subject to change. If tax, investment or legal advice is required, seek the services of a licensed professional.
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