An HSA can save you money on medical costs.
A health savings account can be an excellent way to control the high cost of health care and protect yourself from high medical and hospital bills. By combining a high deductible health plan with an HSA, you can lower your monthly plan premiums and self-insure yourself against that higher deductible.
HDHP
Before you can open a health savings account, you must first have a high-deductible health plan, or HDHP, in place. As the name implies, the deductible sets these plans apart from more traditional plans. To qualify as an HDHP, the plan must have a deductible of at least $1,200 for single coverage or $2,400 for family coverage. If you plan to open an HSA, you should first contact your human resources department or your health insurance agent to make sure your health plan qualifies.
Contribution Limits
For the tax year 2011, you can contribute up to $3,050 to an individual HSA. If you have a family HSA, you can contribute up to $6,150. If you are at least 55 years of age, you can contribute an extra $1,000 to your HSA plan. It is important to keep these contribution limits in mind when you plan your taxes and your health care spending for the year. If you contribute more than the maximum allowed by the IRS, you will trigger a tax penalty until you remove that money from the account.
Eligible Expenses
As of January 1, 2011, you can no longer use the money in a health savings account to pay for over-the-counter medications. This is an important change, because in past years, health savings account owners could use their HSA debit cards to purchase non-prescription cough and cold medication. However, you can continue to use your HSA funds to pay the copayments on prescription drugs, or to pay for prescriptions not covered by your health insurance policy. You can also use your HSA funds to pay the copayment when you visit the doctor, or to pay for the cost of prescription eyeglasses or contact lenses not covered by other insurance.
Who Can Contribute
You can contribute to your own health savings account, and others can contribute to the plan on your behalf as well. If you hold your HSA through your employer, for instance, the employer might make monthly contributions to your plan. Parents, grandparents and even friends can also contribute to your HSA if they wish, as long as the total of all those contributions does not exceed IRS limits.
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