There are two parts to a Health Savings Account...

1. Qualified High Deductible Health Plan (QHDHP): A high deductible insurance policy. Payment for all expenses must be made until the deductible is met.

2. Health Savings Account (HSA): A tax-exempt account with a qualified financial institution in which savings accumulate to pay for medical expenses.  Contributions are tax-deductible and earned interest grows tax-deferred.  An HSA allows for tax reductions while having affordable premiums without risking insurance protection.

Benefits of an HSA

Contributions:

Can be made by the account holder, family member, and/or employer.

Can be made up to 100 percent of annual deductible with maximum limits determined by the IRS each year.  The IRS contribution limit for 2007 is $2850 single or $5650 family.

Catch-up contributions are available to individuals, and their spouses, between the age of 55 and 65.  The IRS catch-up contribution limit for 2007 is $800.

Tax Benefits:

• Contributions can be made pre-tax with an above the line tax-deduction.
• Interest and/or earnings on the assets grow tax-deferred.
• Distributions are tax-free if used for qualified medical purchases.

Allowable Distributions:

Money saved in an HSA can be used for qualified medical expenses. HSA funds can also be used to pay COBRA or other medical insurance premiums during periods of unemployment or temporary layoff.

Eligibility Requirements

• To qualify for an HSA the applicant must:
• Be covered by a Qualified High Deductible Health Plan (QHDHP).
• Not be covered by a health plan other than a QHDHP. Not be entitled to benefits under Medicare.