Health Savings Accounts

Published January 1, 2004

Health Savings Accounts–HSAs–are the new tax-favored option for paying for medical care. HSAs are available to every individual and every employer, large and small.

HSAs are fast becoming the preferred response to the high cost of health insurance premiums.

HSA premiums can be paid by the employer or the employee or both. Employer contributions are not taxable as income and individual contributions are also tax-favored. Self-employed individuals can purchase an HSA and take a 100 percent tax deduction on the premium.

Funds in the spending account part of an HSA plan may be invested as you choose–CDs, money market funds, mutual funds, and so forth. Earnings on the accounts build up free of taxes.

HSA funds may be withdrawn tax-free to pay for qualified medical expenses. HSA funds may be used to pay premiums for long-term care insurance, COBRA continuation premiums, other health insurance premiums for people receiving unemployment benefits, and for retiree health insurance premiums. HSA funds can be used to pay for Medicare premiums.

In the case of death or divorce, the HSA may be transferred to a spouse or other beneficiary without incurring a tax liability. If you like your IRA, you will love your HSA. Contract your insurance agent or insurance broker for details.

IT’S YOUR HEALTH is written by Conrad Meier, senior fellow in health policy at The Heartland Institute. This program is produced as a public service by Radio America. Meier passed away unexpectedly on March 18, 2005.