A Health Savings Account or HSA is a tax advantaged account that is designed to work with a High Deductible Health Plan (HDHP). The basic premise behind this concept is to reduce your health insurance premiums by moving to insurance coverage with a higher deductible. Then you take the money that is saved and deposit into your HSA account. Over time the balance in your account can grow tax deferred and any money remaining at the end of the year will rollover into the next calendar year.
Whenever you have a medical or prescription expense that is not covered by your health insurance you simply pay it using the money in your Health Savings Account. The only requirement is that the money needs to be in the account before it can be spent and they have to be HSA eligible expenses according to the rules.
Who is eligible to open an HSA? Anyone who purchases a high deductible health plan which means at least a deductible of $1200 for an individual or $2400 for a family. There are also limits on the maximum out of pocket that a plan can have, this is $5950 for individuals and $11,900 for families (in 2011). If you are shopping for a health plan that works simply ask for an HSA compatible plan or if you are looking online it should be clearly labeled as a compatible plan.
Where do you open a Health Savings Account? There are many organizations that offer these accounts and are normally insurance companies or banks. Major banks like Chase and Bank Of NY are big administrators, insurance companies such as Principal Financial Group offers them as well as specialized institutions such as HSA Bank. It’s best to compare several institutions using the site above or a similar one to see how the fees and rates vary between companies.
Another suggestion would be to start your HSA in the spring time when cold and flu season winds down (especially if you have school age children). This way you will have several months for your account to build up prior to making trips to the doctor for strep throat and other common infections.
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