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California Health Savings Account (HSA)

Maybe you have heard your California insurance agent or broker mention a health savings account and you have wondered how the concept really works. Maybe you have even read some of the details of the HSA and wondered if it could meet your health care needs as a CA resident. Let’s take a look at a few of the features of an HSA and see if this is a plan that could be a good fit for your health care coverage.

California Health Savings Accounts + High Deductible Health Plans

A Health Savings Account (or HSA as they are frequently called) is a new and improved version of the Medical Savings Account (MSA or sometimes referred to as an Archer MSA). The HSA incorporates an old fashioned high deductible health plan (for tax year 2006 the a high deductible plan is defined by the IRS as a plan with a deductible of at least $1,050 for an individual and at least $2,100 for a family) with a savings account coupled alongside of the health insurance plan to give the owner some very nice tax benefits.

California HSA Tax Benefits

HSA’s are not just for California residents as they are available nationwide and receive the same tax benefits no matter which state of resident the owner claims. Every dollar contributed to the savings account portion of the Health Savings Account (meaning the money that is contributed over and above the premium amount) is allowable as a deduction on the front of the taxpayer’s 1040 tax return (up to certain IRS limits – generally speaking the annual contribution limit is going to be right around the plan’s deductible level prorated over the number of days that the taxpayer is covered under the HDHP.

Example: Bob purchases a HDHP with a deductible of $1,200 on March 1st – what is the maximum amount that Bob can contribute in the savings account over the course of that year? The answer is $1,000 ($1,200 X 10/12) (UPDATE: The Pension Protection Act of 2006 recently changed this pro-rating requirement and now allows a full deductible contribution in year one regardless of when the plan was begun but there is a 10% penalty if the high deductible health plan is not kept in force for the next 12 months. There are also some other nice benefits for HSA owners that the PPA has given including the ability to have a one time roll over from an IRA).

The other tax benefit is that the money grows inside of the account tax free and is able to be withdrawn tax free as long as the withdrawal is to pay for qualified medical expenses. (The definition of “qualified medical expenses is also deemed to be quite broad as even LASIK and other corrective procedures are a potential qualified medical expense – consult with a qualified tax advisor to see what applies in your particular situation). If you decide that you want to withdraw the money in the account to pay for anything that not a qualified medical expense than you will be faced with a 10% penalty charge (penalty is waived after the taxpayer reaches the age of 65). Keep in mind that unlike an employer provided Flexible Spending Arrangement the balance in the account rolls over from year to year.

Compare California Health Savings Account Quotes Now!

 While the HSA does not have some of the traditional plan design features of traditional California health insurance plans like 80/20 coinsurance and copays for doctor’s visits and prescriptions it’s lower monthly premiums and tax advantages can make for a very attractive health care option for many CA residents.

Compare HSA’s right alongside of traditional CA health plans from multiple companies side by side by using our free California health insurance quote tool at the top of the page.

Get started comparing California health insurance plans now!

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