Utah Health Insurance

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Health Insurance Savings Guide

MSA - Medical Savings Account

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MSA- (Medical Savings Account)
An HSA is a special tax-sheltered savings account for medical bills. It is similar to an IRA. Instead of buying high-priced health insurance with a low deductible and low co-pays, you buy a low cost insurance policy with a "high" deductible (for the "big" bills) and save the difference--in the HSA (to cover "small bills"). Money deposited into the account is 100% tax deductible and can be easily accessed by check or debit card to pay health bills tax-free (even stuff not covered by insurance like dental and vision). What you don't use for medical bills is yours to keep--it stays in your account and keeps growing on a tax-favored basis to a) cover future medical bills; or b) supplement retirement, just like an IRA. In sum, the HSA offers 1) lower premiums; 2) lower taxes; 3) freedom of choice; and 4) more cash at retirement.

Establishing an HSA plan is as easy as 1-2-3...

1. Take out a “high deductible” HSA-Qualified health insurance policy. Your monthly premiums will be usually be lower because of the nature of the policy. (Depending on your tax status, your insurance premiums may be tax deductible. For example, health insurance premiums paid by the self-employed are now 100% deductible.) CAUTION: Not just any policy with a so-called “high deductible” will qualify you for the HSA plan—it must be a policy that meets the specific HSA design specified by Congress. (We get a ton of inquiries from folks who think they already have a qualified policy and just want the savings account. In most cases, your existing policy is likely NOT a properly qualified policy.)

2. After the HSA-Qualified insurance policy is issued and in-force, then establish the actual HSA savings account at a qualified financial institution. Under the HSA law, you have a wide variety of investment options in addition to fixed accounts, including mutual funds, stocks and bonds. You are always free to maintain the account at any financial institution that is a bona fide HSA custodian registered with the IRS. Currently, few institutions offer HSA accounts and most that do offer the accounts tend to charge rather high fees (example: a brokerage firm may charge a $100 annual service fee).

UPDATE: With the new HSA law, you can now contribute and fully deduct an amount up to 100% of your deductible amount!

We recommend HSABank.com based on their low service fees (under $2.00/month) and the availability to invest in over 8,000 mutual funds directly online. (This is an actual FDIC bank located in northern Wisconsin that has developed an expertise in HSA accounts.) To learn more about HSABank.com, visit their web site.

3. Begin funding the savings account. There is no minimum contribution required; however, just like an IRA, there is an annual maximum. Be sure not to contribute more than the maximum amount allowable each year. Click here to learn more about the current HSA guidelines (as established by Congress).