With a health savings account, or HSA, you save money tax-free to cover big deductibles, while a cheaper insurance policy protects you against major bills. Here are answers to common questions.
Who can get a health savings account?
Anyone under age 65 who buys a qualified high-deductible policy can open an HSA. You can't be covered by another health insurance policy that isn't a qualified high-deductible plan (either as an individual or a dependent), although you can still have other disability, dental, vision and long-term-care policies. (See "Employee coverage vs. individual plans.")
How much can I contribute annually to an HSA?
You can contribute the amount of the deductible on your policy; for 2008, it's up to $2,900 for singles and $5,800 for families. If you are 55 or older, you can put in an extra $900.Can any high-deductible health insurance policy qualify for an HSA?
Any high-deductible policy can qualify, as long as it meets the IRS requirements. The deductible must be at least $1,100 for individuals or $2,200 for families in 2008. The annual out-of-pocket expenses in 2008 cannot exceed $5,600 for an individual or $11,200 for a family, including the deductible and copayments (but not premiums). Individuals can buy high-deductible policies on their own, or through their employers.
If you're buying a plan on your own, be sure to ask your health insurance company if it qualifies, says Victoria Bunce, research and policy director for the Council for Affordable Health Insurance.
How and where can I open a health savings account?
It depends on whether you're buying coverage on your own or getting it through your employer.
On your own: You can find a list of health insurance companies offering HSA-eligible plans in your state at HSAInsider.com or HealthDecisions.org. You can compare several companies' policies in most states at eHealthInsurance.com, or search for a local agent who knows which policies are available in your area at the National Association of Health Underwriters Web site. The list of companies offering HSA-eligible plans continues to grow every month.
Through your employer: If you get health insurance through your employer, you may have seen an HSA-eligible option during the plan's open enrollment period (generally in the fall). If not, talk to your benefits manager to see if HSAs will be added to your health insurance menu. Choosing an HSA could knock down your share of premiums significantly, and some employers may choose to fund all or part of the HSA for you -- perhaps even adding a 401(k)-style match.Would I fund an HSA with pre- or post-tax dollars?
If your employer offers a high-deductible health insurance policy, you may be able to make pretax contributions, like you would with a flexible spending account. If you open the HSA on your own, your contributions will be deductible when you file your taxes, even if you don't itemize.
For 2008, you'll be able to deduct the lesser of either your insurance deductible or $2,900 for individuals; $5,800 for families. If you're between the ages of 55 and 65, you can add an additional $900 to the deduction limits.