The term “health insurance” is commonly used in the United States to describe any program that helps pay for medical expenses, whether through privately purchased insurance, social insurance, or a non-insurance social welfare program funded by the government. Synonyms for this usage include “health coverage,” “health care coverage,” and “health benefits,” and “medical insurance.” The term describes any form of insurance that protects against injury or illness in a more technical sense.
In America, the health insurance industry has changed rapidly during the last few decades. In the 1970’s most people who had health insurance had indemnity insurance. Indemnity insurance is often called fee-for-service. It is traditional health insurance. The medical provider (usually a doctor or hospital) is paid a fee for each service provided to the patient covered under the policy. An important category associated with the indemnity plans is that of consumer-driven health care (CDHC). Consumer-directed health plans allow
individuals and families to have greater control over their health care, including when and how they access care, what types of care they receive, and how much they spend on health care services. However, these plans are associated with higher deductibles that the insured have to pay from their pocket before they can claim insurance money. Consumer-driven health care plans include Health Reimbursement Plans (HRAs), Flexible Spending Accounts (FSAs), high deductible health plans (HDHps), Archer Medical Savings Accounts (MSAs), and Health Savings Accounts (HSAs). The Health Savings Accounts are the most recent, and they have witnessed rapid growth during the last decade.
WHAT IS A HEALTH SAVINGS ACCOUNT?
A Health Savings Account (HSA) is tax-advantaged medical savings account available to taxpayers in the United States. The funds contributed to the account are not subject to federal income tax at the time of deposit. These may be used to pay for qualified medical expenses at any time without federal tax liability.
Another feature is that the funds contributed to the Health Savings Account roll over and accumulated year over year if not spent. The employees can withdraw these at the time of retirement without any tax liabilities. Withdrawals for qualified expenses and interest earned are also not subject to federal income taxes. According to the U.S. Treasury Office, ‘A Health Savings Account is an alternative to traditional health insurance; it is a savings product that offers a different way for consumers to pay for their health care.
HSA’s enable you to pay for current health expenses and save for future qualified medical and retiree health expenses on a tax-free basis.’ Thus, the Health Savings Account is an effort to increase the American health care system’s efficiency and encourage people to be more responsible and prudent towards their health care needs. It falls in the category of consumer-driven health care plans.
Origin of Health Savings Account
The Health Savings Account was established under the Medicare Prescription Drug, Improvement, and Modernization Act passed by the U.S. Congress in June 2003, the Senate in July 2003, and signed by President Bush on December 8, 2003.
The following individuals are eligible to open a Health Savings Account –
– Those who are covered by a High Deductible Health Plan (HDHP).
– Those not covered by other health insurance plans.
– Those not enrolled in Medicare4.
Also, there are no income limits on who may contribute to a HAS, and there is no requirement of having earned income to contribute to a HAS. However, HAS’s can’t be set up by those dependent on someone else’s tax return. Also, HSA’s cannot be set up independently by children.
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