As health care costs continue to skyrocket, many people are searching for ways to keep coverage affordable. One way to do this is by taking advantage of an opportunity that allows eligible Americans the option of opening a health savings account, a product that functions much like an IRA. “Health saving accounts became available in 2004, but awareness of the product is still in the early-adopter stage,” says Elizabeth Ryan, senior vice president and head of health benefits services for Wells Fargo. “Currently, there are 10 million Americans eligible, but only 4 million using them.” Are you missing out on this government freebie? Here’s a quick summary of what it is and who can benefit.
In a nutshell, it’s a tax-advantaged medical savings account available to any U.S. taxpayer holding a high-deductible health insurance policy. The government defines high deductible as anything over $1,200 for an individual or $2,400 per family. The funds contributed to the account are not subject to federal income tax at the time of deposit. And here’s the best part: the money can be withdrawn without penalty, at any time, provided it’s used to pay medical expenses. Unlike in a flexible spending account, the funds roll over and accumulate year to year if not spent.
Individual policyholders can contribute up to $3,050 annually. For families, the maximum contribution is $6,160. For people already enrolled in a plan like this, it’s a no-brainer. For others—particularly the self-insured—it’s worth running the numbers to see whether switching to a qualifying plan may ultimately be financially advantageous.