INTRODUCTON – The term “health insurance” is commonly used in the United States to describe any plan that helps pay for medical expenses, regardless of whether through privately purchased insurance, interpersonal insurance or a non-insurance social well being program funded by the government. Synonyms for this usage include “health protection, ” “health care coverage” plus “health benefits” and “medical insurance plan. ” In a more technical sense, the phrase is used to describe any form of insurance that provides protection against injury or illness.
In America, the health insurance market has changed rapidly during the last few decades. In the 1970’s most people who got health insurance had indemnity insurance. Indemnity insurance is often called fee-forservice. It is the traditional health insurance in which the medical provider (usually a doctor or hospital) is paid a fee for each service offered to the patient covered under the policy. An important category associated with the indemnity plans is that of consumer driven healthcare (CDHC). Consumer-directed health plans permit individuals and families to have greater control over their health care, including when and how they access care, what types of care they receive and how a lot they spend on health care services.
These plans are however associated with higher deductibles that the insured have to pay from their pocket before they can claim insurance plan money. Consumer driven health care plans include Health Reimbursement Plans (HRAs), Versatile Spending Accounts (FSAs), high insurance deductible health plans (HDHps), Archer Medical Savings Accounts (MSAs) and Health Savings Accounts (HSAs). Of these, the Health Savings Accounts are the most recent found witnessed rapid growth during the last decade.
WHAT IS A HEALTH SAVINGS ACCOUNT?
A Wellness Savings Account (HSA) is a tax-advantaged medical savings account available to taxpayers in the United States. The particular funds contributed to the account are not subject to federal income tax at the time of down payment. These may be used to pay for qualified healthcare expenses at any time without federal tax liability.
Another feature is that the money contributed to Health Savings Account roll over and accumulate year over year if not spent. These can be taken by the employees at the time of retirement with no tax liabilities. Withdrawals for skilled expenses and interest earned are not subject to federal income taxes. According to the U. S. Treasury Office, ‘A Health Savings Account is an alternative to traditional health insurance; it is a savings product that provides a different way for consumers to pay for their own health care.
HSA’s enable you to pay for current health expenses and save for future qualified medical and retiree wellness expenses on a tax-free basis. ‘ Thus the Health Savings Account is an work to increase the efficiency of the American health care system and to encourage individuals to be more responsible and prudent toward their health care needs. It falls in the category of consumer driven health care insurance options.
Origin of Health Savings Account
The Health Savings Account was established under the Medicare health insurance Prescription Drug, Improvement, and Modernization Act passed by the U. S. Congress in June 2003, with the Senate in July 2003 and signed by President Bush on December 8, 2003.
The following individuals are eligible to open the Health Savings Account –
– Those people who are covered by a High Deductible Health Program (HDHP).
– Those not included in other health insurance plans.
– Individuals not enrolled in Medicare4.
Also you will find no income limits on who may contribute to an HAS plus there is no requirement of having earned income to contribute to an HAS. However HAS’s can’t be set up by those who are dependent on someone else’s tax return. Also HSA’s cannot be set up independently by children.
What is a High Deductible Health plan (HDHP)?
Enrollment in a Higher Deductible Health Plan (HDHP) is a necessary qualification for anyone wishing to open a Health Savings Account. In fact the particular HDHPs got a boost by the Medicare Modernization Act which introduced the HSAs. A High Deductible Health Program is a health insurance plan which has a specific deductible threshold. This limit must be crossed before the insured person can claim insurance money. It does not cover first dollar medical expenses. So an individual has to himself pay the original expenses that are called out-of-pocket expenses.
In a number of HDHPs costs of immunization and preventive health care are excluded from the deductible which means that the individual will be reimbursed for them. HDHPs can be taken both by individuals (self employed as well as employed) and employers. Within 2008, HDHPs are being offered by insurance providers in America with deductibles ranging from a minimum of $1, 100 for Self plus $2, 200 for Self plus Family coverage. The maximum amount out-of-pocket limitations for HDHPs is $5, 600 for self and $11, two hundred for Self and Family enrollment. These deductible limits are called INTERNAL REVENUE SERVICE limits as they are set by Internal Revenue Service (IRS). In HDHPs the relation between the deductibles and the superior paid by the insured is inversely propotional i. e. higher the deductible, lower the premium and vice versa.
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The major purported advantages of HDHPs are that they will a) cheaper health care costs by causing patients to be more cost-conscious, and b) make insurance premiums more affordable for the uninsured. The logic is that when the individuals are fully covered (i. electronic. have health plans with lower deductibles), they tend to be less health conscious and also less cost conscious when going for treatment.
Opening the Health Savings Account
An individual can sign up for HSAs with banks, credit unions, insurance firms and other approved companies. However not every insurance companies offer HSAqualified health insurance plans so it is important to use an insurance company that provides this type of qualified insurance plan. The employer might also set up a plan for the employees. Nevertheless , the account is always owned by the individual. Direct online enrollment in HSA-qualified health insurance is available in all states except Hawaii, Massachusetts, Minnesota, Nj, New York, Rhode Island, Vermont plus Washington.
Contributions to the Health Savings Account
Contributions to HSAs can be manufactured by an individual who owns the account, by an employer or by any other person. When made by the employer, the factor is not included in the income of the employee. When made by an employee, it is handled as exempted from federal taxes. For 2008, the maximum amount that can be added (and deducted) to an HSA from all sources is:
$2, nine hundred (self-only coverage)
$5, 800 (family coverage)
These limits are set by the U. S. Congress by means of statutes and they are indexed annually for inflation. For individuals above 55 years of age, there is a special catch up provision that allows them to deposit additional $800 with regard to 2008 and $900 for yr. The actual maximum amount an individual can contribute also depends on the number of months he is covered by an HDHP (pro-rated basis) as of the first day of a month. With regard to eg If you have family HDHP protection from January 1, 2008 till June 30, 2008, then end having HDHP coverage, you are allowed an HSA contribution of 6/12 of $5, 800, or $2, 900 for 2008. If you have family HDHP coverage from January one, 2008 until June 30, 2008, and have self-only HDHP coverage through July 1, 2008 to Dec 31, 2008, you are allowed a good HSA contribution of 6/12 x $5, 800 plus 6/12 of $2, 900, or $4, 350 for 2008. If an individual opens an HDHP on the first time of a month, then he can lead to HSA on the first day by itself. However , if he/she opens an account on any other day than the initial, then he can contribute to the HSA from the next month onwards. Contributions could be made as late as April 15 of the following year. Contributions to the HSA in excess of the share limits must be withdrawn by the individual or be subject to an excise tax. The individual must pay tax on the excess withdrawn amount.