Health Savings Account Blog

HSA plans were created by a 2003 law that linked Health Savings Accounts to qualified high-deductible health insurance plans. HSA Plans allow people to increase savings with tax-free interest, and use the savings to cover deductibles and other medical expenses. Both employers and employees can deposit into these accounts, but the funds belong soley to the employee. That's very different from flexible spending accounts. With those, employees lose everything in the account they haven't used at the end of the year or whenever their employment ends.

The new healthcare laws did change the defininition of qualified healthcare expenses. As of January, you will not be allowed to purchase over-the-counter medications (aspirin, cold rememdies, etc.) with Health Savings Account funds unless a doctor prescribes these. Using a Health Savings Account for unqualified expenses will incur a 20-percent penalty, and that's double the earlier 10-percent penalty.

This change may be in response to a 2008 Government Accountability Office report that concluded the average household income of those with Health Savings Accounts was about $139,000. As a whole, taxpayers' average household income is only about $57,000. It seems that primarily higher-income households benefit from HSA Plans. Still, more employers are offering HSA Plans in attempts to replace comprehensive health insurance plans. Almost half of all companies with over 10,000 employees have already done so, and small-business owners are offering HSA Plans as well.

The new healthcare laws have also affected insureres. When nHealth of Richmond went out of business, it blamed new requirements that insurers spend 80 to 85 percent of the premiums they collect on clinical services and quality measures, or give customers rebates. News reports have suggested this claim was intended to obscure the fact that the company that was losing money before new regulations. Now, there may be fewer insurers in that area to offer HSA-compatible plans.