What are Health Savings Accounts?
Posted by J.P. Farley Corporation on Mon, Jan 23, 2012
A health savings account, or HSA, could be thought of as a rainy day fund for medical expenses. That may be an overly simplistic definition, but it’s an easy and fairly accurate way to explain what is actually a complex insurance and tax vehicle. Implemented in 2003, health savings accounts are tax-exempt trusts that operate on the same principal as a savings account. They are generally funded by contributions from an employee or employer (or both), but can be funded by anyone. The money put into a health savings account can be withdrawn at a later date to reimburse qualifying medical expenses.
Health savings accounts are a smart way to protect yourself against unforeseen and catastrophic medical expenses; but they can also be used as a budgetary tool to help manage annual health care costs. By making regular contributions to a health savings account, people who take expensive prescription drugs or have a chronic illness or medical condition that requires ongoing medical care can use health savings accounts to save for known costs and spread out expenses.
Health savings accounts often make health more insurance affordable for many individuals and families who might otherwise struggle to afford health care. Health savings accounts must be tied to high deductible health health plan. High deductible health plans usually offer lower premiums in exchange for which the insured pays a higher deductible for medical care. Health savings accounts provide a way for people to pay those higher deductibles by saving ahead.
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