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How to Save Money
for Health Care
Open One of the New Health Savings Accounts (HSA)
A Health Savings Account (HSA) works very much like an
IRA, except that the money you contribute is used to pay health care
costs. Participants enroll in a relatively inexpensive high-deductible
insurance plan, then open a tax-deductible savings account to cover
current and future out-of-pocket medical expenses. The money deposited, as
well as the earnings, is tax-deferred. Participants can later withdraw the
money to cover qualified medical expenses tax-free.
For 2004, a high-deductible insurance plan is a health plan with a minimum
deductible of $1,000 for self coverage and $2,000 for family coverage. The
maximum out-of-pocket expenses for allowed costs must be no more than
$5,000 for self-coverage and no more than $10,000 for family coverage.
Annual contribution limits for 2004 are capped at the deductible portion
of the high-deductible insurance plan or $2,600 for an individual ($5,150
for a family), whichever amount is less.
Here’s how it works. Obtain coverage under a qualified high-deductible
health insurance plan. Each year, deposit the money you saved on lower
premiums into the tax-favored HSA. Use the savings account to pay for your
deductible portion with tax-free dollars. Once you meet the deductible,
the insurance starts paying for your medical expenses.
Everyone (not just self-employed taxpayers or small business owners) with
a qualified high-deductible insurance plan is eligible for a
tax-deductible HSA.
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