HSAs (Health Savings Accounts) – What are they?

Health savings accounts (formerly known as medical savings accounts) are an ideal solution for California businesses that are looking to control ever-increasing health care costs while at the same time giving their employees flexibility, portability and tax savings. HSAs in their present form have been in existence since 2003, when they were added into the Medicare Prescription Drug, Improvement and Modernization Act. These health savings plans are intended to put more control into the hands of the consumer, which should reduce costs and allow them more freedom to choose the health provider and services they desire.

How a Health Savings Account is Set Up

Health savings accounts are similar in structure to an Individual Retirement Account (IRA).

The HSA has two parts – A high deductible health plan and a tax-free savings account

1. The high deductible health plan

The high deductible health plan can be purchased individually or through an employer who offers it. The deductible is normally around $2500 to $10,000 or more. This covers individuals in the case of unforeseen catastrophic events or illnesses that require hospitalization and tend to accumulate high medical bills.

2. The tax-free savings account

The tax-free savings account can be used to pay for qualified incidental expenses like doctor visits and physicals. Individuals are allowed to contribute up to $3050 (before taxes) annually into their account. For a family, the limit is $6150. Like with a 401K plan, businesses are allowed to make contributions to their employee’s HSA. However, the combined contributions of the employer and employee cannot exceed the annual contribution limit.

HSA – A Tax-Free Savings Account

The money that is contributed to the savings account portion of the HSA can be invested free of federal income tax into IRS-approved savings plans that yield a return over time. The money in these accounts can be paid out tax free to cover expenses for routine visits to doctors, dentists and other health care providers (subject to qualifications). The money can also be used to pay for part or all of the deductible in the event that money is needed to meet the deductible. When an individual turns 65 or becomes disabled, they are allowed to withdraw the money in the savings account for any reason. Should a person need to make a withdrawal before age 65 for non-medical expenses, they would be subject to a 20% penalty.

Advantages of Health Savings Accounts

Both the employer and employee can receive many benefits from setting up a health savings account at your business.

• The premiums are generally much lower than with other California health insurance plans.
• These accounts will also bring happier employees because they will appreciate the increased control they have over their health care decisions.
• They will also be able to save money tax-free, just like with an IRA or 401K.
• Perhaps the greatest benefit for employees is the money saved inside the HSA belongs to them. So no matter what employer they have in the future, the money they have saved in their health savings account will always travel with them.

If you believe an HSA is right for you or your business, get in touch with Taylor Benefits Insurance Agency in San Jose today. We are experts in helping California businesses and individuals save money on their insurance premiums and finding them the insurance coverage that best fits their needs.

Give us a call to find out what we can do for you!