I personally have learned first-hand about the difficulty of obtaining, and paying for, private health insurance in the U.S., so I can appreciate a money-saving plan when I see one. If you have a high-deductible insurance plan, please read on for more information about the money-saving benefits of a health savings account. In fact, if you regularly use absorbent products (adult diapers) to manage a health condition, you may want to learn about health savings accounts even if you have a low-deductible insurance plan. Because most insurance plans won't cover incontinence supplies, you actually may find it financially beneficial to switch to a higher-deductible plan so that you'll be eligible for a health savings account.
What are Health Savings Accounts (HSAs)?
Health savings accounts (HSAs) were approved by the federal government in 2003 to offer financial relief to individuals and families with a high-deductible insurance plan. An HSA is a savings account that you own privately and make tax-deductible (or in some cases, pre-tax) contributions to. The saved money can then be used to pay for eligible medical expenses.
Who is Eligible for a Health Savings Account?
To be eligible for an HSA you must be under 65 years old and have a high-deductible health plan (the minimum deductible for individuals is $1,100 and for a family is $2,200) without being covered by other insurance (the exceptions are disability, dental, vision, and long-term care insurance), and you can't be enrolled in Medicare.
How Does an HSA Work?
The maximum annual contribution in 2008 that you can make to your account is $2,900 for an individual, or $5,800 for a family. People over 55 can make an additional $900 in contributions. If you open an HSA on your own, you would deduct your contributions on your taxes, even without itemizing your taxes. Any interest or earnings on money in the HSA are not taxed. If you open the HSA through your work, you may be able to make contributions from pre-taxed income.
The money that you save in your HSA belongs to you, but if you take the money out before the age of 65 for non-medical expenses, you'll have to pay taxes on that money, and you'll also have to pay a 10% penalty. If you take out money after the age of 65 for non-medical expenses, you have to pay the taxes, but not the penalty.
Is a Health Savings Account the same as a Flexible-Spending Account?
Health savings accounts and flexible-spending accounts, although similar in their tax benefits, are different kinds of accounts. The main difference (and benefit of HSAs) is that the money saved in an HSA can be rolled-over from year to year, so you don't risk loosing it at the end of the year like you would with a flexible-spending account. You can only have one account or the other, but not both.
What Medical Expenses are Covered by an HSA?
Health savings accounts can be used to pay for "qualified medical expenses". The bad news is that there is no definitive list of qualified medical expenses. Insurance coverage is not an indicator of whether or not an expense is covered by an HSA, as in many cases HSAs can be used to pay for medical expenses that are not covered by insurance. Specifically to incontinence, there is an IRS publication that includes a partial list of expenses considered qualified and not-qualified. While incontinence products of any kind are not specifically listed as a qualified expense, under the list of unqualified expenses, it says the following, "You cannot include in medical expenses the amount you pay for diapers or diaper services, unless they are needed to relieve the effects of a particular disease."
If you decide to try utilizing a health savings account to pay for your incontinence supplies, be sure to keep all receipts in case of an audit. You may also want to keep a dated and signed letter from your doctor addressing your medical need for incontinence products. Because there are so many "gray" areas as to the qualifying expenses in regards to a health savings account, it would probably be wisest to speak to an accountant before choosing to open such an account.