Health Savings Account (HSA) Basics

What is a Health Savings Account?

Health savings accounts (HSAs) allow individuals to save money for health care expenses on a tax-deferred and tax-free basis. This law was signed into law on December 8, 2003 and became effective on January 1, 2004. The tax deferred money can be invested into mutual funds, stocks, cash or bonds and can earn interest. The money can only be used for medical expenses otherwise taxes and a possible penalty may apply. Individuals with high deductible health insurance plans are eligible to open a health savings account. High deductible insurance typically require $1,000 or more in out of pocket expenses before it can qualify as such.

In 2003, health savings accounts were introduced as a part of a “consumer directed health care” initiative. The government encouraged these programs as a means to control health care costs. Health care companies and the government assumed that physicians would have an incentive to lower their health care costs if the physicians had to compete for a patient’s business. Consumers would also demand better care if they were spending their own money as opposed to a company’s or insurance company’s money. How well this has worked is obviously up for debate.

Individuals who are generally healthy will typically benefit from investing in a health savings account as it’s an effective way to pay for routine doctor visits, prescriptions, and procedures. However, individuals who may need immediate health care should assess whether or not they can afford their deductible and weigh the options. If you have a possible need for an expensive procedure in the next few years it may be far cheaper to pay the high deductible instead of putting money aside in savings that may not cover ever

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Source : http://genxfinance.com