HSA Accounts or HSA plans allow you to save money to pay for future medical expenses on an income tax-free basis. Any individual, who has an approved High Deductible Health Plan (HDHP) and who is not covered under another disqualifying health plan, can participate in an HSA. An employer can also offer Health Savings Accounts to his employees and both the employer and employees are allowed to contribute funds to the HSA. If offered in conjunction with a qualified Flexible Spending Account (FSA) commonly referred to as a cafeteria plan, savings in FICA and FUTA taxes as well as income taxes can be achieved.

An Health Savings Account is really a combination of a health insurance policy meeting minimum US Treasury policy design requirements called a High Deductible Health Plan (HDHP) and a separate custodial savings account for future medical expenses called a Health Savings Account (HSA). Congress created the HSA as a way to cover your future medical expenses, and it is subject to IRS regulations and guidelines. A health insurance company or an insurance plan usually provides the qualified health insurance policy. A licensed HSA administrator and financial services company, such as a bank, usually acts as the custodian and administers the savings account portion of the HSA.

A qualified HSA plan has a single deductible that applies to all medical expenses covered by the insurance policy whether you are insuring yourself or an entire family. This deductible must be satisfied each year before the insurance company pays on any medical claims. The single deductible for an individual must be a minimum of $1,100 and can be any deductible up to the maximum out-of-pocket limit of $5,500 (if the plan pays at the 100% level after the deductible) and the single deductible for a family must be at least $2,200 up to the maximum out-of-pocket limit of $11,200 (if the plan pays at the 100% level after the deductible) for the year 2008 Preventive care can be provided without having to meet the deductible first. The limits on maximum out-of-pocket expenses include both the deductible and any shared expenses you are obligated for. These limits are subject to annual cost-of-living adjustments determined by the IRS, which will cause these values to change over time. You can exceed the out-of-pocket limits if you go outside the provider network on a preferred provider plan. The plan still qualifies.

You can save up to the maximum contribution limit of $2,900 for an individual HSA and $5,800 for a family HSA regardless of the HDHP deductible for 2008. These limits are also subject to annual cost-of-living adjustments. Amounts are no longer pro-rated if you start the plan mid-year. You can now make the full year's contribution even if you start as late as December. Individuals age 55 to age 65 can contribute an additional $900 over the above limits in 2008.

Consult your tax advisor for additional information concerning plan deductibility.

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