Health savings accounts – An American innovation in health insurance

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INTRODUCTION – The
term “health insurance” is commonly used in the United States to describe any
program that helps pay for medical expenses, whether through private insurance,
social insurance, or a health care program. government funded uninsured social
protection. Synonyms for this usage include “health coverage”, “health
coverage” and “health benefits” and “medical insurance”. In a more technical
sense, the term is used to describe any form of insurance that provides
protection against injury or illness.
 
In America, the
health insurance industry has evolved rapidly over the past few decades. In the
1970s, most people with health insurance had indemnity insurance. Indemnity
insurance is often referred to as fee-for-service. This is traditional health
insurance in which the medical provider (usually a doctor or hospital) receives
a fee for each service provided to the patient covered by the policy. An
important category associated with compensation plans is consumer-centered
health care (CDHC). Consumer-focused health plans allow individuals and
families to have greater control over their health care, including when and how
they access care, what types of care they receive, and how much they spend on
health services. health.
 
However, these plans
are associated with higher deductibles that the insured must pay out of pocket
before they can claim insurance money. Consumer-focused health care plans
include Health Reimbursement Plans (HRA), Flexible Spending Accounts (FSA),
High Deductible Health Plans (HDHps), Archer Medical Savings Accounts ( MSA)
and health savings accounts (HSA). Of these, health savings accounts are the
most recent and have grown rapidly over the past decade.

WHAT IS A HEALTH
SAVINGS ACCOUNT?

 
A health savings
account (HSA) is a tax-advantaged medical savings account made available to
taxpayers in the United States. Funds deposited into the account are not
subject to federal income tax at the time of deposit. These can be used to pay
for eligible medical expenses at any time without federal tax liability.
Another feature is
that the funds put into the health savings account are carried over and
accumulate from year to year if not spent. These can be withdrawn by employees
upon retirement without any tax liability. Withdrawals for qualifying expenses
and interest earned are also not subject to federal income tax. According to
the US Treasury, “A health savings account is an alternative to traditional
health insurance; it is a savings product that offers consumers a different way
to pay for their health care.
HSAs allow you to pay
current health care costs and save for future medical and health care expenses
of qualified retirees on a tax-free basis. Thus, the Health Savings Account is
an effort to increase the efficiency of the American health care system and to
encourage people to be more responsible and careful about their health care
needs. It falls under the category of consumer-oriented health care plans.
 

Origin of the health
savings account

 
The health savings
account was created under the Medicare Prescription Drug, Improvement and
Modernization Act passed by the US Congress in June 2003, by the Senate in July
2003 and signed by President Bush on December 8, 2003.
Eligibility –
The following people
can open a health savings account –
– Those
covered by a high deductible health plan (HDHP).
– Those who are not
covered by other health insurance plans.
– Those who are not
registered for Medicare4.
There is also no
income limit on people who can contribute to a HAS and there is no obligation
to have earned income to contribute to a HAS. However, HAS cannot be
implemented by those who depend on someone else’s tax return. Additionally,
HSAs cannot be independently installed by children.
 

What is a high
deductible health plan (HDHP)?

 
Enrollment in a High
Deductible Health Plan (HDHP) is a necessary qualification for anyone wishing
to open a health savings account. In fact, HDHP was boosted by the Medicare
Modernization Act which introduced HSAs. A high deductible health plan is a
health insurance plan that has a certain deductible threshold. This limit must
be crossed before the insured person can claim an insurance sum. It does not
cover first dollar medical expenses. Thus, an individual has to pay for the
initial expenses which are called personal expenses himself
.
 
In a number of HDHPs,
the costs of vaccination and preventive health care are excluded from the
deductible, which means that the individual is reimbursed. HDHP can be taken by
both individuals (self-employed and employees) and employers. As of 2008, HDHPs
are offered by insurance companies in America with deductibles ranging from a
minimum of $ 1,100 for self and $ 2,200 for personal and family coverage. The
maximum amount payable for HDHP is $ 5,600 for yourself and $ 11,200 for
personal and family registration. These deductible limits are called IRS limits
because they are set by the Internal Revenue Service (IRS). In HDHP, the
relationship between the deductibles and the premium paid by the insured is
inversely proportional, i.e. the deductible increases, decreases the premium
and vice versa. The main purported benefits of HDHPs are that they will a)
reduce health care costs by making patients more cost conscious, and b) make
insurance premiums more affordable for the uninsured. The logic is that when
patients are fully covered (i.e. they have health plans with low deductibles),
they tend to be less health conscious and also less cost conscious when they
are headed for treatment
.
 

Opening a health
savings account

 
An individual can
register for HSAs with banks, credit unions, insurance companies, and other
licensed businesses. However, not all insurance companies offer HSA qualified
health insurance plans, so it is important to use an insurance company that
offers this type of qualified insurance plan. The employer can also set up a
plan for the employees. However, the account still belongs to the individual.
Direct online enrollment in HSA-qualified health insurance is available in all
states except Hawaii, Massachusetts, Minnesota, New Jersey, New York, Rhode
Island, Vermont, and from Washington
.

Contributions to the
health savings account

 
Contributions to HSAs
can be made by a person who owns the account, by an employer, or by anyone
else. When paid by the employer, the contribution is not included in the
employee’s income. When made by an employee, it is considered exempt from
federal tax. For 2008, the maximum amount that can be contributed (and deducted)
to an HSA from all sources is
:
$
2,900 (
individual
protection
)
$
5,800 (
family
coverage
)
 
These limits are set
by the US Congress through articles of association and are indexed annually to
inflation. For people over 55, there is a special catch-up provision that
allows them to deposit an additional $ 800 for 2008 and $ 900 for 2009. The
actual maximum amount a person can contribute also depends on the number of
months in which it is covered by an HDHP. (pro rata) from the first day of the
month. For example, if you have family HDHP coverage from January 1, 2008 to
June 30, 2008 and then stop having HDHP coverage, you are entitled to an HSA
contribution of 6/12 of $ 5,800, or $ 2,900 for 2008. If you have family HDHP
coverage from January 1, 2008 to June 30, 2008, and benefit from stand-alone
HDHP coverage from July 1, 2008 to December 31, 2008, you are entitled to an
HSA contribution of 6/12 x $ 5800 plus 6 / 12 of $ 2,900, or $ 4,350 for 2008.
If an individual opens an HDHP on the first day of the month, they can
contribute to HSA on the first day themselves. However, if they open an account
on a different day than the first, they can contribute to the HSA from the
following month. Contributions can be paid no later than April 15 of the following
year. HSA contributions in excess of contribution limits must be withdrawn by
the individual or be subject to excise tax. The individual must pay tax on the
excess amount withdrawn
.
 

Employer
contributions

 
The employer can make
contributions to the employee’s HAS account as part of a pay reduction plan
called a section 125 plan. It is also called a cafeteria plan. The
HSA withdrawals
The HSA is owned by
the employee and he / she can make it an eligible expense whenever needed. He /
She also decides how much to contribute, how much to withdraw for eligible
expenses, which company will hold the account and what type of investment will
be made to grow the account. Another feature is that the funds remain in the
account and play a role from year to year. There are no rules of use or loss.
HSA participants do not need to obtain prior approval from their HSA trustee or
medical insurer to withdraw funds, and funds are not subject to income tax if
made for purposes. “Eligible medical expenses”. Eligible medical expenses
include the costs of services and items covered by the health care plan but
subject to cost sharing such as a deductible and coinsurance, or co-payment, as
well as many other expenses not covered by the health care plan. medical plans,
such as dental, vision and chiropractic care. care; durable medical equipment
such as glasses and hearing aids; and transport costs related to medical care.
Over-the-counter drugs are also eligible. However, eligible medical expenses
must be incurred from the inception of the HSA.
 
Tax-free
distributions may be taken from the HSA for qualifying medical expenses of the
person covered by HDHP, the spouse (even if not covered) of the individual and
any dependents ( even if not covered) of the individual.12 The HSA account can
also be used to pay for the eligible expenses of the previous year provided
that these expenses were incurred after the establishment of the HSA. The
person should keep receipts for expenses covered by the HSA, as they may be
needed to prove that the HSA withdrawals were made for qualifying medical
expenses and not otherwise used. The individual may also need to produce the
receipts to the insurance company to prove that the deductible limit has been
met. If a withdrawal is made for unqualified medical expenses, the amount
withdrawn is considered taxable (it is added to personal income) and is also
subject to an additional penalty of 10%. Normally, the money also cannot be
used to pay for medical insurance premiums. However, in certain circumstances exceptions
are allowed.
 
These are –
1) To pay for any
health plan coverage while receiving federal or state unemployment benefits.
2) Ongoing COBRA
coverage after leaving employment with a company that offers health insurance
coverage.
3) Qualified
long-term care insurance.
4) Health insurance
premiums and personal expenses, including deductibles, co-payment and
coinsurance for: part A (hospital and hospital services), part B (medical and
outpatient services), part C ( Medicare HMO and PPO plans) and Part D (prescription
drugs).
 
However, if a person
dies, becomes disabled or reaches the age of 65, withdrawals from the health
savings account are considered exempt from income tax and an additional penalty
of 10%, regardless of the purpose for which these withdrawals are made. There
are different methods by which funds can be withdrawn from HSAs. Some HSAs
provide account holders with debit cards, some with checks, and some have
options for a reimbursement process similar to medical insurance.

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