Since 2003, when Congress created the Health Savings Account (HSA), banks have been involved in helping employers and individuals set up the accounts to fund future health care costs. HSAs are increasingly striking a chord among employers and individuals as a useful option for the future. This is partially due to efforts to tie health care costs in the United States to market forces by creating informed health care consumers. It is also likely that health care reform will facilitate increased use of HSAs.
What are Health Savings Accounts and How Are Banks Involved? -
Health Savings Accounts are just what the name implies: they are tax-exempt trusts or custodial accounts that allow individuals to save for their future medical expenses and those of their spouses and dependents. Individuals are generally eligible for an HSA if they are enrolled in a high-deductible health plan (HDHP), defined as a plan with an annual deductible of at least $1,250 for an individual or $2,500 for a family, and which adheres to certain limits on annual out-of-pocket expenses and other requirements. The maximum annual contribution to an HSA, which may be sponsored by an employer or established by an individual, is currently $3,250 for an individual (increasing to $3,300 in 2014) and $6,450 for a family (increasing to $6,550 in 2014). Anyone may make tax-free contributions to the HSA on behalf of the beneficiary within the annual limits, and the HSA beneficiary can then withdraw the funds on a tax-free basis to cover qualifying medical costs not covered by the HDHP. Unlike the more widely familiar flexible spending accounts, amounts held in an HSA are transferable to another custodian and may be rolled over from year to year. As an additional benefit, HSA beneficiaries who reach age 65 may choose to use the funds in the HSA for medical expenses or as additional retirement income. Funds used for additional retirement income are taxed at ordinary tax rates without penalty.
Originally published in the Oregon Bankers Association’s Banking Matters magazine on October 10, 2013.
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