Health Savings Accounts – An American Innovation in Health Insurance

Health Savings Accounts: Introduction – The word “health insurance” is often used throughout the United States to describe any program that assists in paying costs for health care, regardless of whether it is private-purchased insurance social insurance or social welfare program that is not which is funded by the federal government. Synonyms for this term include “health coverage,” health coverage for health” as well as “health benefits” and “medical insurance.” In an even more technical sense, it can be used to refer to any type of insurance which provides insurance against illness or injury.

In America, the industry of health insurance has seen rapid changes over the past couple of decades. In the 1970s, most people with health insurance also had indemnity insurance. Indemnity insurance is commonly referred to as fee-for-service. It is the most common type of health insurance where the medical professional (usually an individual doctor or hospital) receives a payment for every service offered to the person covered by the policy. A key category that is of indemnity insurance plans is consumers-driven health insurance (CDHC). Health plans that are directed by consumers allow families and individuals to have more control over their health as well as the manner in which they seek care, the kind of health care they get and how much they pay on health-related services.

However, these plans come with higher deductibles, which the insured must pay out of their own pocket before they are able to claim insurance funds. Health insurance plans for consumers comprise Health Reimbursement Plans (HRAs) and Flexible Spending Accounts (FSAs), high-deductible healthcare plans (HDHps), Archer Medical Savings Accounts (MSAs) and Health Savings Accounts (HSAs). Of these, Health Savings Accounts are the most recent and have seen rapid growth over the last decade.

What is a HEALTH SAVINGS ACCOUNT?

The Health Savings Account (HSA) is a tax-deferred medical savings account open to taxpaying taxpayers in the United States. The funds that are deposited into this account will not be tax-deductible under federal income tax when they make the deposit. The funds can be used to cover medical expenses of a qualified nature anytime without any federal tax obligation.

Another benefit is that contributions to the Health Savings Account roll over and grow year-over-year in the event that they are not utilized. They can be withdrawn by the employee when they retire with no tax implications. In addition, withdrawals made for qualified expenses and the interest earned are not subject to federal income tax. As per the U.S. Treasury Office, “A Health Savings Account” is a viable alternative to health insurance that is traditional It is a savings account which offers a different method to cover their health costs.

HSA’s allow you to cover current medical expenses and also save money for the future health care expenses for retirees and medical professionals with no tax.’ This is why they can be used to Health Savings Account is an attempt to boost efficiency in the American health care system as well as encourage people to become more prudent and responsible with their health-related needs. It falls under the category of health care that is primarily based on the needs of consumers. plans.

The origins of the Health Savings Account

Health Savings Account Health Savings Account was established as part of the Medicare Prescription Drug, Improvement, and Modernization Act approved in Congress in June 2003, by the U.S. Congress in June 2003. The act was approved and approved by Senate in July 2003. Senate on July 3, 2003, and was signed by the President Bush on the 8th of December 2003.

Eligibility to be eligible

The following persons are qualified to open a Health Savings Account –

– Individuals who are covered under the High Deductible Health Plan (HDHP).They are not covered by any other healthcare insurance programs.
– Individuals who are not already enrolled in Medicare4.

Additionally, there are no income limitations on the amount of money that can be contributed to an HAS. Additionally, there is no requirement to have an income source in order to participate. However , HAS’s aren’t able to be created by people who depend on other tax return. Additionally, HSA’s can’t be created by children on their own.

What is a high deductible health plan (HDHP)?

Participation in the high deductible Health Plan (HDHP) is an essential requirement for those who wants to open a Health Savings Account. The HDHPs actually received an boost from their inclusion in the Medicare Modernization Act which introduced the HSAs. An HSA with a high Deductible health Plan is an insurance policy for health care that includes a specific deductible threshold. The threshold must be met before an insured person is able to take advantage of insurance funds. The insurance does not cover the first-dollar medical expenses. Thus, the individual must pay for the first expenses which are referred to as out-of-pocket expenses.

In many HDHPs, cost of vaccination and preventive health services are not included from the deductible. This means that the person gets reimbursed for them. HDHPs are available by people (self employed and employed) as well as employers. Since 2008, HDHPs have been offered through insurance firms across America with deductibles that range from one hundred dollars to Self, and $2,200 to the Self- and Family insurance. The maximum amount of out-of-pocket limitations in HDHPs includes $5600 for the self coverage and $11,200 for Family and Self enrollment. The deductible limits are referred to as IRS limits because they are determined in IRS. Internal Revenue Service (IRS). In HDHPs, the relationship between the deductibles and premium that the insured pays is in inverse propotional i.e. greater the deductible, less the premium, and the reverse is true. The main benefits claimed by HDHPs is that they increase the deductible, a) reduce the cost of health care through causing patients to become more conscious of their expenses, and b) increase the cost of insurance, making it lower for the uninsured. It is believed that when patients are covered fully (i.e. are covered by health plans with low deductibles) They tend to be less conscious of their health and more cost-conscious when it comes to treatments.

The process of opening a Health Savings Account

Individuals is able to enroll for HSAs at banks or credit unions, insurance companies, and other approved organizations. However , not all insurance providers offer HSA-qualified health insurance plans, so it is crucial to select an insurance provider that provides this kind of insurance plan. Employers can set up a health insurance plan for their employees. But, the account is owned by the person who owns it. The ability to enroll online for HSA-qualified health insurance coverage is available across all states, with the exception of Hawaii, Massachusetts, Minnesota, New Jersey, New York, Rhode Island, Vermont and Washington.

Participation in Health Savings Account Health Savings Account

Contributions to HSAs may be paid by the person who is the owner of the account, an employer, or by any other individual. If the contribution is made by an employer the contribution isn’t part of the income that the employees earn. If it is the contribution is made by an employee it is considered exempt by federal tax. The maximum amount that could be contributed (and tax-deductible) in an HSA from any source is:
$2,900 (self-only coverage)
$5,800 (family coverage)

The limits are set through Congress. U.S. Congress through statutes and are then indexed each year to reflect inflation. For people who are older than 55 years of age, there’s an additional catch-up provision which allows them to contribute an more than $800 in 2008 and $900 for 2009. The maximum amount the individual is able to contribute depends on the number months that he is covered under the HDHP (pro-rated base) at the beginning of the first day of the month. For instance, if you have family HDHP coverage beginning January 1, 2008 to the 30th of June 2008 when you the coverage ends. HDHP coverage, you will be entitled to the HSA contributions of 6/12, or $5,800, or $2.900 for 2008. When you’ve had family HDHP coverage beginning January 1, 2008 through the 30th of June 2008 and you have self-only HDHP coverage beginning the 1st of July 2008 until December 31 the 31st of December, 2008, you are eligible for to contribute an HSA contributions of 6/12 times $5,800 plus 6/12 = $2,900 or $4,350 for 2008. If a person opens the account of an HDHP at the beginning of the month, he is able to contribute to the HSA on the day of opening that day. However, if the person opens an account on another day other than the first then he is able to make contributions to HSA starting from the next month to the next month. Contributions are allowed up to the 15th of April in the next year. Any contributions made to HSA over the contribution limits have to be withdrawn by the person or subject to taxation. The taxpayer must pay the income tax on the over taken amount.

Contributions made by the Employer

Employers are able to contribute to an employee’s HAS account as part of the salary reduction plan referred to as Section 125. It’s also known as cafeteria plan. The contributions in the cafeteria plan are on a pre-tax basis i.e. they are not included in the salary of the employee. Employers are required to make contributions on a similar basis. Comparable contributions refer to contributions made to the entire HSAs that an employee has that include either one) equal in amount or) the equivalent proportion of annual deductible. However, part-time employees working not more than thirty hours per week are treated as separate. The employer may also separate employees into groups that opt to have self coverage only, or those who select family coverage. Employers can make automatic contributions to HSAs on behalf of employees unless the employee expressly chooses not to receive these contributions from the employer.

Removals from HSAs

The HSA is the property of the employee, and he or she can use it for eligible expenses at any time. He/she also decides on the amount to be deposited into it, the amount to withdraw to cover qualified expenses, the company that will manage the account, and what kind of investments are used to increase the amount of money in the account. Another benefit is that the money remains in the account, and carry change between years. There are no lose it or use rules. The HSA participants are not required to seek approval prior to withdrawal by the trustee of their HSA trustee or medical insurance company to take money out, and the funds aren’t subject to taxation on income when used for “qualified medical expenses”. The qualified medical expenses are those that include the cost of services or items covered by health plans but not subject to cost sharing like coinsurance and deductibles or co-payments, as with other expenses that aren’t covered by medical insurance plans, like chiropractic, vision, and dental treatment; medical equipment that is durable like eyeglasses and hearing aids; and travel expenses that are related to medical care. Over-the-counter and nonprescription medications are also covered. However, medical expenses that are qualified must be paid on or after the date the HSA was set up.

Tax-free distributions can be made from the HSA to pay for qualifying medical expense of the individual who is covered by the HDHP or spouse (even in the event that they are is not insured) of the person and any dependent (even even if they are is not insured) who is not covered) of that individual.12 It is also possible to use the HSA account is also utilized to pay the previous year’s eligible expenses, subject to the condition that these expenses were incurred prior to the time the HSA was established. The user must save the receipts of expenses paid through the HSA because they could be required to prove the funds taken of the HSA were for qualifying medical expenses and were not employed. Additionally, the person may need present the receipts to insurance companies to show that the deductible was reached. If the withdrawal is to cover medical expenses that are not qualified the money withdrawn is considered tax-deductible (it will be added onto an individual’s income) and also subject to a 10% penalty. In most cases, the funds cannot be used to pay for the cost of medical insurance. In certain situations the exceptions can be made.

These are

1.) To pay health insurance plan in addition to receiving state or federal unemployment benefits.
2.) COBRA continuation coverage after having left a job that provides health insurance.
3) Qualified long-term care insurance.
4.) Medicare premiums and out-of-pocket expenses, including deductibles co-pays, as well as coinsurance for Part A (hospital and inpatient services) Part B (physician and outpatient services) Part C (Medicare HMO and PPO plans) and Part D (prescription medications).

If the person dies, becomes disabled , or attains the threshold of age 65, withdrawals made from HSAs made by the Health Savings Account are considered exempt from income tax and a penalty of 10 percent regardless of the reason of the reason for which withdrawals were taken. There are various ways in that money can be taken from HSAs. Some HSAs allow accounts with debit cards while others provide account holders with cheques, and some offer options for reimbursement like medical insurance.

Growing HSAs

Since when the Health Savings Accounts came into being in January of 2004 There has been an astounding increase in the number of people who have them. From just 1 million participants as of the month March 2005 this number has risen to 6.1 million people enrolled at the beginning of 2008.14 This is an increment of 1.6 million from January 2007 2.9 million in January 2007, and 5.1 million in March 2005. This increase has been evident across all categories. However, the growth of small and large groups has been significantly higher than the individual category. According to projections released by the U.S. Treasury Department, the amount of HSA policy holders will grow to 14 million by 2010. The 14 million HSA policies will offer coverage to up to thirty millions U.S. citizens.

Within the Individual Market, 1.5 million customers were covered by HSA/HDHPs as of January 2008. Based on the total number of insured lives 27 percent of newly purchased individual insurance policies (defined as policies purchased in the last full quarter or month) were in HSA/HDHP coverage. For the market for small groups, the enrollment was 1.8 million in January 2008. Within this segment, 31 percent of new enrollments fell into the category of HSA/HDHP. The category with the largest number of participants was the most popular with 2.8 million people enrolled at the time of January 2008. This category had 6 percent of new enrollments came from the HDHP/HSA category.

The benefits of HSAs

The HSA advocates see many benefits that can be derived from their use. It is believed that because they have a higher threshold for deductibles, the insured are more conscious of their health. They will also be more conscious of their costs. High deductibles can encourage people to be more cautious regarding their overall health as well as health expenses , and make them look for bargains and more cautious about over-spending in the health care sector. This, according to experts will help reduce the rising cost of health insurance and boost the effectiveness of the health program in the United States. The HSA-compliant plans usually provide tools to aid in making decisions, which contain, in some cases information about the cost of health care services as well as the quality of the health care providers. Experts recommend that accurate data on the price of certain health services as well as the quality of particular health care providers can assist enrollees to be more involved in their health care purchase choices. These tools can be provided by health insurance companies to any health insurance plan enrollees however, they are likely to be of greater importance to those who are enrolled of HSA-eligible plans , who are more financially enticed to make informed decisions regarding the quality and cost of health healthcare providers and services.

It is believed that the lower costs associated with HDHPs and HSAs will allow more people to sign up for medical insurance. This means that people in people with lower incomes that don’t have access to medicare can access HSAs. Certain, higher deductibles will be connected with HSA qualified HDHPs however, it is anticipated that the tax savings from HSAs as well as lower rates will lower the cost as other plans. The funds that are put into the HSA can be carried into the next year. There are no no-use or lose it rules. This can lead to an increase in the savings of the account user. The money can be used in a tax-free manner for medical expenses in the future in the event that the holder wishes to. Additionally, the savings from the HSA can be grew by investing.

The type of investment is determined by the person who is insured. The interest earned on savings within the HSA are not subject to income tax. The account holder is able to withdraw his funds from the HSA when he reaches 65 years old and not pay taxes or penalties. The account holder is in full control of his/her account. The account holder is the sole owner of the account since the beginning. One can access funds at any time, without a gatekeeper. The owner also decides on what amount of money to deposit into his or her account, how much to spend, and the amount to be saved to save for the future. The HSAs are a type of account that is portable. That means that in the event that the account holder is fired from his job, loses employment or relocates to a new location, the holder is able to keep the account.

Additionally, if the account holder wishes to, they can transfer their Health Saving Account from one managing agency to another. This is a benefit of HSAs. Another benefit is that the majority of HSA plans offer coverage of first-dollar to cover preventive healthcare. This is the case with virtually all HSA plans that are offered by large employers, and more than 95% of plans offered by smaller employers. This was also the case for more than 50% (59 percent) of plans that were purchased by people on their own.

All plans offering the first-dollar preventive benefits offered included annual physicals, vaccinations, well-child and well-baby care Mammograms, Pap and other tests The majority of plans covered prostate cancer screenings. the majority of plans covered colon cancer tests. Certain experts think that HSAs are more advantageous for young people and healthy since they don’t have to pay for frequent cost out of pocket. However they must pay less for HDHPs which allow them to meet unexpected contingencies.

Health Savings Accounts are also beneficial to employers. Benefits of choosing a Health Savings Account in place of a traditional insurance plan will directly impact the overall cost of an employer’s benefits budget. For instance, Health Savings Accounts are dependent on a high-deductible insurance policy that reduces the cost of an employee’s insurance plan. Furthermore, the contribution towards Health Savings Accounts Health Savings Account are pre-tax and therefore reduce the total payroll , and thus reducing the amount of tax the employer is required to pay.

Criticism of HSAs

The critics for Health Savings Accounts contend that they will cause more harm than good to the American health insurance system. Some consumer-oriented organizations like Consumers Union, and many medical associations, including The American Public Health Association, have criticized HSAs as they believe they are only beneficial to younger, healthier individuals and can make the health system more costly for all. Based on Stanford economics professor Victor Fuchs, “The main result of placing more of the burden onto the customer is to decrease the social redistributive component of insurance.

Others believe that HSAs cut healthy individuals out of the pool, and they increase the cost of insurance for those who are left. HSAs are a way for individuals to protect themselves more and spread risk more evenly. A second concern is that the funds people save in HSAs is not enough. Many people think that HSAs don’t offer sufficient savings to cover the costs. Even those who contribute the maximum amount and never withdraws any money out will not be able to pay for the costs of health care in retirement , if the rate of inflation in the healthcare industry.

HSA opponents include prominent figures such as State insurance commissioner John Garamendi who declared them an “dangerous prescription” that could destabilize the health insurance market and create a worse situation for those who are not insured. Another issue is that they benefit the wealthy more than those who are poor. The people who earn more are able to enjoy more tax benefits as compared to those earning less. The opposition points out that the higher deductibles, along with higher insurance premiums could take away a significant portion of the earnings of poorer groups. Additionally, lower income groups won’t benefit significantly from tax benefits since they already pay very only a small amount of tax. However, tax breaks for savings made in HSAs as well as on the earnings from those HSA savings will result in billions of dollars in tax revenue to the Treasury.

The Treasury Department has estimated HSAs could cost the federal taxpayer $156 billion in a period of 10 years. The critics say this number could be significantly higher. Numerous studies have been conducted on the effectiveness of the HSAs. Some have shown that account holders aren’t particularly happy about the HSA scheme and some are not even aware of the operation of HSAs. A survey that was that was conducted in 2007 among American personnel by human resource consultancy company Towers Perrin showed satisfaction with accounts-based health plans (ABHPs) was not high. The respondents were unhappy with them as a whole, when compared to people who have more traditional health plans. Respondents said they weren’t confident about the risks and were unsure of the way it worked.

As per the Commonwealth Fund, early experience of HAS qualified high-deductible health insurance plans show low satisfaction, significant cost out-of-pocket expenses as well as access issues related to cost. A separate survey conducted by The Employee Benefits Research Institute discovered that those who are enrolled in HSA-eligible high-deductible health insurance plans were less satisfied with a variety of aspects of their healthcare than those in more comprehensive plans. Those who are enrolled in these plans commit substantial amounts of income towards their healthcare, particularly those with lower health or have lower incomes. The study also revealed that people in high-deductible health insurance plans are more likely to put off or avoid seeking needed treatment or even to delay taking medication due to the expense. The problem is particularly acute for those who have poorer health or less income.

Politicians have spoken out about their disapproval of HSAs. Representative John Conyers, Jr. issued the following statement expressing his disapproval of the HSAs “The Health care policy of President Obama does not aim at protecting the uninsured, making the cost of health insurance affordable or even reducing prices for medical insurance. The real goal of the plan will be to create more convenient for businesses to transfer their health insurance burden on employees, provide tax breaks to the rich and increase the profits of banks and brokers. The health insurance policies formulated at the whim of particular interests are not designed to aid the typical American. In many instances they could cause health care to become less accessible.” A report from the U.S. governments Accountability office released on April 1st in 2008, states that the percentage of individuals enrolled in HSAs is higher for high income individuals than those with people with lower incomes.

A study entitled “Health Savings Accounts and high-deductible health plans: Is It an option for families with lower incomes? by Catherine Hoffman and Jennifer Tolbert and sponsored by the Kaiser Family Foundation reported the following findings on the HSAs:

A) premiums for HSA-compliant health plans can be less than traditional insurance plans, however the plans transfer more risk of financial loss to the individual and their families by imposing higher deductibles.
b) The cost of premiums and other out-of-pocket expenses for health insurance plans that are HSA-qualified will consume a significant part of a family with a low income’s budget.
c) The majority of low-income individuals and families don’t have an adequate amount of tax burden to gain in any significant way by tax deductions that are associated with HSAs.
d) people with chronic illnesses or disabilities and those with medical costs that are expensive could face higher out-of-pocket costs when they enroll in HSA-qualified health plans.
e) Cost-sharing decreases the amount of healthcare services used particularly preventive and primary services. Those with low incomes as well as those with a chronic illness are more sensitive to the increase in cost-sharing.
F) Savings accounts for health and high-deductible plans are not likely to significantly boost health insurance coverage among those who are not insured.

Making a choice about a health Plan

Despite the benefits offered by the HSA However, it may not be appropriate for all. When choosing an insurance plan the individual should take into account the following aspects:

1. The cost of the premiums that must be paid.
2. Benefits and coverage are available through the scheme.
3. Different exclusions and restrictions.
4. Portability.
5. Costs out of pocket, such as coinsurance, copays and co-pays, deductibles and.
6. Access to hospitals, doctors and other services.
7. What is the cost and how often you pay for health care.
8. Any health condition or physical impairment.
9. Tax savings of various kinds are that are available.

The plan you pick should be reflect your needs and financial capability.

BIBLIOGRAPHY

1. Questions and answers regarding Health Insurance- A Consumer Guide released in collaboration by Agency for Healthcare Research and Quality (AHRQ)and America’s Health Insurance Plans (AHIP)
http://www.en.wikipedia.org/wiki/Health_savings_account
3. 2002 AHIP Survey of Health Insurance Plans
4 “How High Is Too High? Implications of high-deductible health plans” Davis, Karen; Michelle Doty and Alice Ho. The Commonwealth Fund, April 2005
http://www.fdhc.state.fl.us/schs/pdf/hsa_tri-fold_brochure.pdf
6 HSA/HDHP CENSUS CENSUS 2008 by Hannah Yoo, Center for Policy and Research American’s Health Insurance Plans
7″HEALTH Savings Accounts Early Experiences of Enrollees with Accounts and HMOs that are eligible” John E. Dicken Director, Health Care.
8. Thomas Wilder and Hannah Yoo, “A Survey of Preventive Benefits of Health Savings Account (HSA)Plans, July 2007.” American’s Health Insurance Plans, November 2007
9. Gladwell, Malcolm, “The Moral Hazard Myth”, The New Yorker (29-08-2005)
10 2008 Benchmark Survey HAS Bank
11. Employer Health Benefits Survey 2007 Kaiser Family Foundation
12. Health Savings Plans and Health Plans with a High Deductible are they a viable option for low-income families? Catherine Hoffman as well as Jennifer Tolbert for Kaiser Family Foundation October, 2006
13. Medicare Prescription Drug, Improvement, and Modernization Act of 2003

I am a passionate reader, who loves to write, too. I have an MBA with a focus on finance.

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