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The Virginia Engineer's Guest Articles

Health Savings Accounts

July, 2006

Health Savings Accounts
A Real Solution or the Newest Fad

By T. S. Herbert, VII

You may have heard in the news recently about a new option in the ongoing effort to reduce health care costs — Health Savings Accounts (HSA). HSAs have been around since 1996 but under a different name, Medical Savings Accounts. In 2003, Congress updated and simplified the concept giving us the modern Health Savings Account. So while the concept is not new, President Bush, the insurance industry, and others have been trying to raise public awareness about HSAs as one method to control ever increasing health care costs.

So what is an HSA and how does it actually work? In the simplest terms, you buy a low cost high deductible health insurance plan and you can put money away tax free in a savings account. But to better understand it, we will need to break the concept down into its two component parts. The first involves mandatory enrollment in a low-cost high deductible health Plan (HDHP). The second is the actual Health Savings Account where money can be put aside tax free.

Let’s begin with the health insurance plan. In order to qualify for the HSA and be able to put money away tax free, you must first purchase what the IRS defines as a qualified High Deductible Health Plan (HDHP). This is a policy with a minimum deductible of $1,050 for a single person or $2,100 for those with a dependent such as spouse, child, children and or family on the policy. These amounts are indexed to inflation and the IRS may increase these deductibles. All medical expenses including office visits, facility charges, and prescription drugs apply to this deductible. There is one exception, defined by and applied at the sole discretion of individual insurance companies, wellness visits can be covered not subject to the deductible but covered first dollar. Wellness visits could include routine physicals, yearly OBGYN checkups, or well child care, including immunizations. Other than the deductible limits, the government allows the insurance companies a lot of leeway with respect to plan design, but the IRS mandates that all expenses apply to the deductible, except for wellness care. For the most part insurance companies have kept it simple with the plan design. You have a choice of deductibles and coinsurance, and a pre-d