Health Savings Account (HSA's) were introduced in 2004 and since then have created quite a stir. One of the primary reasons of introducing the HSA was to address the issue of rising healthcare costs. The HSA enables the consumer to use tax-free dollars to pay for routine healthcare expenses such as doctor visits and prescription drugs. They must be offered in conjunction with high deductible health plans which provide coverage for major medical events. HSA's are beneficial for both employers and employees.

Benefits for Employers:
  • Reduction in premiums as HSA is offered in conjunction with high deductible plan.
  • Reduction in social security tax and workmans compensation as it is based on gross payroll.
Benefits for Employees:
  • HSA can be funded from dollars that are not only exempt from federal income tax but also exempt from social security and medicare taxes.
  • Unused contributions from a calendar year can be rolled over to the subsequent years to pay for deductible and medical expenses.
  • The employees can take their account with them upon changing jobs and can withdraw from it after retirement.
  • The HSA can be used to pay for variety of medical services that may not be covered under the traditional healthcare plans.
  • The funds in the HSA grow tax-deferred and withdrawals for qualified medical expenses are tax-free.
HSA contribution limit:
For individuals the 2009 HSA contribution limit is $3,000 or $5,950 for a family. Family for HSA purposes is considered anything more than individual enrolled in HSA compatible health coverage. For example, employee and child(ren), employee and spouse or employee, spouse and child(ren). Annual contributions can be made up to the Federal maximum regardless the deductible of the HSA-compatible insurance plan. For example, if the health plan annual deductible for a single person (under 55 years of age) is $1,500 he or she can still contribute up to $2,900 for the year . Both individuals and employers can contribute to HSAs. Unspent money in one year rolls over into the next year. Individuals age 55 or older (and not yet enrolled in Medicare) can make additional "catch-up" contributions of up to $1,000 per person this year, which can provide extra help to many early retirees.

HSA Investment Options:
HSA funds can be invested similarly to IRA's, including stocks, bonds, mutual funds, and certificates of deposit.

US Treasury Department on HSA:

About HSAs

Frequently Asked Questions

HSA Calculator

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