Despite the increasing cost of health care, many people are discovering that they can lower the cost of maintaining health care coverage by 40 to 50 percent when they trade in an expensive co-pay plan for a high-deductible health plan that can be combined with a Health Savings Account (HSA).
Before you can set up a Health Savings Account, you need one of the high-deductible health plans. Only certain plans with deductibles of $1,200 or more are actually qualified to permit you to start a special kind of savings account that gives you tax-free earnings and a tax deduction for the money you deposit. Plans with deductibles are becoming increasingly popular.
Even high-deductible plans provide 100-percent coverage for many common things like flu shots, an annual check-up and screenings for cancer, diabetes, heart disease and more. There are no copays or co-insurance, either. You can get help to lose weight or stop smoking, too, without having to meet the plan's deductible as long as you got the policy after September 22, 2010 when health care reform became law. With that in mind, you may want to get a plan with a higher deductible because as a rule, the premiums are less for the higher deductibles.
As of 2012, you need to have a deductible of at least $1,200 for individual coverage or $ 2,400 for family coverage to be eligible to set up an HSA. To see if a plan qualifies, look for the words "Qualifying High Deductible Health Plan" or a reference to "IRC Section 223" on the declaration page of the policy. If this documentation is not available, it is NOT an HSA-qualified plan.
HSA Plans Bring Tax Advantages
One of the main reasons that Health Savings Accounts remain popular is they offer tax benefits. The money you contribute to your savings account can be deducted from your annual income to lower your taxes. You don't even need to itemize deductions because HSA contributions are considered "above the line" deductions.
In 2012, the maximum annual contribution that an individual can make is $ 3,100. Families, on the other hand, are allowed a maximum annual HSA contribution of $6,250. Once you reach 55, you are allowed to begin contributing an additional $1,000 each year.
You can use your HSA dollars to pay for qualified medical care expenses tax-free. Qualified health care services include dental and vision care and even acupuncture. If you use your HSA funds for other purposes, there will be a 20-percent tax penalty if you are under 65. Once you reach 65, you can use the money for any purpose at all without incurring a penalty. However, you still need to pay taxes on the amount that you withdraw.
If you start a HSA while you're young, you can let it grow to prepare for your retirement. You can invest HSA funds in stocks, bonds and mutual funds. The balance grows with tax-free interest. Once you become eligible for Medicare, you can no longer fund your HSA.
By Wiley Long - President, HSA for America - The nation's leading independent health insurance agency specializing in individual and family HSA plans that works with a Health Savings Account.
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