Even if you have excellent health insurance, there is a good chance that not all the costs of an extended hospital stay will be covered. In the event that you require some type of home health care as part of the recuperative period, the amount covered by your insurance policy may still leave you with deductibles and some portion of the total cost that must be settled out of pocket. This is where having health savings account can come in very handy.
Understanding the Nature of the Account
A health savings account is simply an account that allows individuals and families to set aside funds that can be used to take care of medical expenses that are not settled by their health insurance providers. This type of account is structured to assist those who have medical coverage with high deductibles and limited scopes of coverage to have funds on hand to help settle those additional medical expenses.
A health savings account may be established through an employer. When this is the case, the account is normally funded by a portion of the employee’s wages or salary that is deposited each payday. In addition, the employer may choose to match those contributions up to a certain amount. It is also possible to establish an independent account if the employer does not offer this type of arrangement. The structure of the account does place a limit on the total amount of contributions that can be made during the course of the calendar year.
Benefits of the Health Savings Account
All funds deposited in the account are invested, making it possible to grow the balance over time. This has the benefit of helping the holder of the account to constantly be adding to the balance, even if the employer does not offer the plan and the employee must establish an account with an authorized provider. A portion of the proceeds from the investment activity is allocated to each of the plan participants, usually on an annual or a semi annual basis.
There are also tax benefits associated with participating in a health savings account. While saving money for future medical expenses, it is also possible to claim the contributions as tax deductions. In addition, the balance in the account accumulates interest and is considered tax-free. When there is a need to withdraw funds to assist with outstanding medical bills, there is a good chance that those withdrawals will not be subject to taxation.
Who Can Participate in a Health Savings Account?
This type of approach to saving money is specifically set up for consumers who have health insurance with high deductibles. In order to qualify for participation, your health plan must currently carry deductibles and a limited scope of coverage that meets the standards set by the current tax codes. People who carry health insurance with relatively low deductibles can usually not participate and take advantage of the tax breaks.
Along with the particulars of the health insurance plan, the individual must also not be listed as a dependent on the health coverage of a spouse, parent or partner. You also cannot currently be covered under Medicare. The general idea is to aid people in saving money for medical expenses not covered by their health insurance plans. If you happen to have access to some other insurance coverage that can cover the difference, you are not considered eligible for participation.