The Medicare Prescription Drug, Improvement and Modernization Act of 2003 expanded the health benefits available to consumers by authorizing the use of HSAs. These consumers range from the self-employed to the employer groups of any size and their employees. HSAs are designed to give you more control over your healthcare expenses by allowing you to take advantage of high deductible health insurance plans with lower premiums. There are two parts to the HSA program:
- A Health Savings Account: An HSA is an account you use to set aside funds on a pre-tax or tax-deductible basis to pay for routine healthcare - such as office visits, prescription drugs and lab tests, and other out of pocket medical expenses
- A High Deductible Health Plan: To qualify for an HSA account you must also be enrolled in a qualifies high deductible health plan
The money you put into your HSA can reduce your taxable income. Here's how:
- The contributions are 100% tax-deductible
- The funds grow tax-deferred
- When funds are used on eligible medical expenses, they are distributed tax-free.
- Unlike a typical FSA, HSA funds roll over year to year, and funds used after age 65 are able to be used tax-free for eligible medical expenses or at your normal tax rate for non-eligible expenses.
Please consult your personal tax or legal advisor regarding your individual situation.