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Health savings accounts - An American innovation in health insurance

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.


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 These can be withdrawn by employees upon retirement without any tax liability.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.