Confusion continues to exists about Health Savings Accounts aka HSA's, so here is a short course to help.
First, an HSA's is NOT a type of Health insurance plan. Many of the insurance products today are confusing, because they use the words/letters "HSA in the product name (e.g., BlueChoice HMO HSA). This is only an indication the "PLAN" is an IRS defined Qualified High-Deductible Health Plan (QHDHP), aka a HSA Compatible Plan, which is required to set up an HSA.
So, what is an H.S.A.? Think of it like a savings account that allow you to pay for medical expenses on a tax-deductible basis. In many ways and HSA is similar to a traditional IRA. Annual contributions and distributions are defined. You may make a tax-deductible contribution to each, and both apply penalties for early withdrawal - EXCEPT the HSA allows withdrawals when they are made for Qualified Medical Expenses.
For an HSA, the first thing is to purchase a Qualified High-Deductible (aka HSA Compatible) health plan. Then set up an HSA either with the insurance company, or with another trustee (bank, etc.). Like any other savings account, you may only spend what you have saved. So, be sure to deposit funds, order checks and a debit card to cover your medical expenses.
Remember anyone can set up an HSA so long as he or she are not enrolled in Medicare, covered by other insurance, or be claimed as a dependent on someone else's tax return.
Each year the H.S.A. Maximum Contributions are indexed - just Google HSA Contribution Limits for the latest, or call our office!
*Please check with your CPA and Tax advisor for complete information.