Health Care Reform Adjusts Medical Savings Accounts

04/05/2010

Health savings accounts were established under the George W. Bush administration as a way for consumers to cut back on health insurance premiums.

Contributions to these HSAs are made from one's taxable income and grow tax-deferred while in the account. They must be paired with a high-deductible insurance plan, which traditionally increases the out-of-pocket costs made by a consumer before their insurance kicks in.

Flexible spending accounts offer a lot of these same benefits, but any funds invested in them must be spent by the end of the year. Both must be used toward medical expenses in order to avoid penalties. Both also await changes under the Patient Protection and Affordable Care Act.

Starting in 2011, consumers will not be able to use these accounts to pay for over-the-counter medications. Contribution caps on FSAs starting in 2013 may make HSAs a more attractive option, according to a recent report by Kiplinger. Starting that year, workers will not be able to contribute more than $2,500 per year to their FSA. HSAs also have limits, but the money is not wiped out at the end of a year. It can even endure job changes.

In order to qualify for an HSA in 2010, individuals must have a deductible no lower than $1,200. Families must have a deductible $2,400 or higher.

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