Health Savings Account

HSA or Health Savings Account is basically an IRA account for current and future health-care expenses and supposed to help retirees pay for just a fraction of future health-care expenses. HSAs were created by the Medicare bill signed by President Bush on December 8, 2003.

To be eligible for a Health Savings Account, an individual must be covered by a HSA-qualified High Deductible Health Plan (HDHP) and must not be covered by other health insurance that is not an HDHP. The money contributed is tax-deductible, grows tax-free and can be withdrawn tax-free for medical expenses. A worker who can contribute $1,000 per year for 40 years in an HSA could accumulate $133,400 to pay for future health-care expenses. If the same worker contributes $2,700 per year, the HSA nest egg could grow to a whopping $475,000.

For 2006, the most you can put into an HSA is $2,700 if you have single coverage and $5,450 for a family. Those amounts will be increased for inflation in future years. For more details consult HSA page of The US Department of Treasury.

What is HDHP?
The HDHP (High Deductible Health Plan) features higher annual deductibles (a minimum of $1,100 for Self and $2,200 for Self and Family coverage) than other traditional health plans. The maximum amount out-of-pocket limits for HDHPs in 2006 is $5000 for self and $10,000 for Self and Family enrollment. You may have the choice of using in-network and out-of-network providers. Using in-network providers will save you money. With the exception of preventive care, you must meet the annual deductible before the plan pays benefits. Preventive care services are generally paid as first dollar coverage or after a small deductible, or copayment. A maximum dollar amount (up to $300, for instance) may apply.