A Health Savings Account is a plan that an individual purchases to safeguard against future and current expenses for medical care. A HDHP plan is a High Deductible Health Plan and an HSA is often used in conjunction with that type of health coverage.
An HDHP plan is one that doesn’t cover medical expenses for the first dollar unless it is for preventive care. It can be an indemnity, PPO or HMO plan as long as the requirements are met. On December 8th, 2003, President Bush signed the HSA plan into law and Medicare legislation created it.
Are You Eligible for an HSA?
Requirements for someone to be eligible for an HSA include people that have no health insurance at all, are covered by an HDHP, are not enrolled presently in Medicare, or classified as a dependent on the tax return of someone else. Eligibility does not hinge upon your income and you don’t even have to have an earned income to contribute to this plan. Children cannot create an HSA on their own though a spouse can create their own plan if they meet eligibility requirements.
Other health care insurance that is allowed in order to meet the eligibility requirements are accident disability, illness or particular disease insurance, dental plan, insurance for long term care, disability insurance or insurance for vision and eye care. Also included are Employee Assistance Programs, a wellness program and disease management programs. As long as the mentioned health care programs don’t contribute significantly to the nature of medical treatment or care they meet the requirements. You can also possess a drug discount card, be eligible for benefits from the V.A. as long as you haven’t received health benefits from them three months prior to your enrollment.
Some Examples of the First Dollar Medical Benefits
Some health programs that would deem an individual ineligible are Health Reimbursement Arrangements or HRA, Flexible Spending Arrangements also referred to as FSA, Tricare Coverage and Medicare. There are those that can be eligible with some FSA/HRA/HSA combinations.
Rules for HSA Contributions
An individual or an employer may contribute to an HSA or both if the contribution made by your employer does not tax the employee and must be excluded from wages and income. It is now possible for an individual to transfer funds from their IRA to an HSA as a one time transfer as long as they stay within the limits that apply for transfer for that year.
As of 2007, contributions and deductions from all sources to an HSA is $5650 for family coverage and for individual coverage it is $ 2850. If you are over the age of 55 there are some allowances for contributions considered “catch up” to an HSA. Once you become enrolled in any kind of Medicare plan, all contributions must cease.
There is much more involved in the rules and regulations of HSA contributions and we have just touched on a few of them. If you aren’t sure if you should sign up for an HSA, ask a financial expert’s advice to find out if you are eligible for an HSA and if it is in your best interest to enroll in this plan.
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