What's a Health Savings Account?
An HSA combines high deductible health insurance with a savings account. Money in the savings account helps pay the deductible and medical care. Once the deductible is met, the insurance starts paying. Money left in the savings account earns interest and is yours to keep.

Why High Deductible Health Insurance?
To get the benefits of an HSA, the law requires that the savings account be combined with high deductible health insurance. High deductible health insurance costs less than traditional $250 or $500 deductible coverage, because the insurance company doesn’t have to process and pay claims for routine, low-dollar medical care.

Who is Eligible for an HSA?
Anyone who is not entitled to Medicare can accumulate tax-favored savings for health care needs. You must have a qualified high deductible health insurance plan and no other similar health insurance. A qualified health plan for singles has a minimum deductible of $1,100. For families, a qualified health plan must have a minimum deductible of $2,200 – one deductible for the entire family.

How Does a Health Savings Account Work?

• Obtain coverage under a qualified health insurance plan with a minimum deductible of $1,100 for singles and $2,200 for families.
• Open an HSA savings account with bank of your choice and start contributing. Contributions to the HSA are 100% deductible (up to the legal limit) — just like an IRA.
• Use the savings account to pay for your lower-dollar medical expenses, or those that aren’t covered by the health plan.
• Once you meet the deductible, the health insurance covers your medical expenses as defined in the policy.

Important 2007 HSA Law Changes
Recent changes in HSA law provide new opportunities for individuals and families to save for current and future health care:
HSA holders can choose to save up to $2,850 for an individual and $5,650 for a family in 2007, customers 55 and older get to save an extra $800. These contributions are 100% tax deductible from gross income.
The new law allows a onetime transfer from an IRA (individual retirement account) or FSA (flexible spending account) to an HSA. The onetime transfer from an IRA cannot exceed the annual contribution limit. Unlike with an IRA or 401K, savings withdrawn from an HSA are not taxable as long as they are spent on qualified medical expenses.
Also, for individuals and families who open their HSA in a month other than January, the new law removes barriers to contributing the maximum amount for the year.

Is an HSA plan the right choice for me?

5 QUESTIONS CONSUMERS SHOULD ASK THEMSELVES

Do I want to save money for current and future health expenses?
HSA plans have two primary components – health insurance coverage and an actual tax-advantaged savings account. You can use the money in the savings account to pay for your current health expenses, but you also own the money in the account regardless of whether your health coverage changes or you move to another city. So, HSAs offer an opportunity to build tax-advantaged savings for current and future health expenses.

Which type of health plan gives me a better financial value?
Do you prefer to save money on your monthly premiums in exchange for paying some of the initial costs of your health care services out of your own pocket (known as the “deductible”)? Or would you rather pay higher monthly premiums in exchange for your insurer covering a portion of your costs from day one? With HSA plans you can put the money you save on your premiums into your tax-advantaged savings account to build interest, whereas with a traditional plan, more money is spent on premiums regardless of how much health care you actually use.

Have I considered all the relevant costs for each plan?
To make sure you’re not comparing apples to oranges, you should consider all of the cost elements associated with each plan option. Traditional plans may include: higher monthly premiums, a smaller deductible, as well as co-pays and/or coinsurance. HSA plans may include: lower monthly premiums and a higher deductible. So depending on your health needs, a high-deductible plan may very well cost less overall than repeatedly paying a traditional plan’s co-pays and coinsurance.

Will I lose unused money in the HSA?
HSAs don’t have a “use it or lose it” provision. Just as some cell phone providers now let you roll over unused minutes; HSAs let you roll over your unused dollars from one year to the next, so you don’t have to worry about ever forfeiting your money.

Is it difficult to connect the HSA plan with the bank account?
Since you need to select a financial institution to open your savings account with, if the health insurer offering the HSA plan also has a financial institution available, it can make the process of setting up and using an HSA much easier and more convenient. Some insurers have their own bank and offer a single enrollment process, so you can sign up for both the health insurance plan and the bank account at the same time, eliminating the need to go through two separate enrollment processes. Also, one way to turn HSA funds into long-term health care savings is to invest that money in mutual funds or other opportunities. So make sure that the bank you choose has investment options available.

Let us compare, then, two health insurance plans for a 27-year old, non-smoking woman, Chicago resident. The first one is Select Blue with $500 deductible and the other is HSA with $1,100 deductible. The premium calculated in Select Blue Plan is $257 monthly and $3,300 annually, whereas in HSA the monthly premium is $160 and $1,920 per year. In this way, on premiums we save $1,380 annually. If, during the year, we had to visit doctor’s office often, or be hospitalized, we would have to add our deductible to the amount spent on health. Thus, in Select Blue we would spend $3,800 ($3,300 premiums + $500 deductible) and in HSA $3,020 ($1,920 + $1,100). Still, with Health Savings Account Plan, we are saving money - $780 annually.