Get a Free Quote Affordable Care Act

Health Savings Account

The Affordable Care Act aka Obamacare:  Health Savings Account

By Mark Morrison, Juris Doctor, Consumer Advocate

President Obama signed the Affordable Care Act into legislation on March 23, 2010, which is why it is known as Obamacare.  The Affordable Care Act guarantees access to medical insurance for tens of millions of Americans and much more.

The Affordable Care Act extends insurance to more than 30 million people, primarily by expanding Medicaid and providing federal subsidies to help lower- and middle-income Americans buy private coverage.

Under the Act, most Americans will be required to have health insurance starting January 2014.  Low and middle-income people can get tax credits and other subsidies to help pay their premiums, unless they have access to affordable coverage from an employer.  If you do not have health insurance in place, you will pay a penalty.

As of September 23, 2012, health insurance companies and group health plans are required to provide you with an easy-to-understand summary about a health plan’s benefits and coverage. The new regulation is designed to help you better understand and evaluate your health insurance choices.

The Act is forcing insurance companies to offer more transparent and competitive health insurance plans.  As a result of these changes, rising health insurance costs and a weak economy, we Americans are getting smarter and choosing high-deductible health plans, often known as “catastrophic health insurance.”  These plans feature lower-than-average premiums in exchange for higher-than-average deductibles.

Another benefit is these type of plans offer tax advantages with a health savings account, which is a medical savings account with tax benefits (it is common to refer to these as “health savings accounts” or “medical savings accounts” because the meaning is the same).  There are well-established private companies where a consumer can easily open, use and monitor their own health savings account.  These plans are available to both individuals and employees.

In order to qualify for an HSA, you must first purchase a high-deductible health plan, which is essentially a lower premium and higher deductible than a traditional health plan.  For example, in 2013 the minimum deductible for a single person is $1,250 and for a family is $2,500 and maximum out-of-pocket for single is $6,250 and for a family is $12,500.

Once the high deductible plan is purchased and HSA account set up, an individual can contribute $3,250 and a family can contribute $6,450 and the funds contributed are not subject to federal income tax.  For example, if an individual makes $30,000 and pays a tax rate of 20%, income taxes would be $6,000.  If $3,250 is contributed to an HSA, then income taxes due would be $30,000 – $26,750 x 20% = $5,350 giving the taxpayer a $650 savings.

The consumer can now use the contributions made to an HSA to pay for medical expenses not covered by their insurance plan.  In the event the funds are not used, they remain in the account for future medical expenses and can even be invested for future tax-free growth.  Once you reach retirement age, you can withdraw the funds for non-medical expenses without taxation.  If withdrawn before retirement age for non-medical reasons, then you are taxed on those funds similar to an IRA (investment retirement account) account.

In the end, Obamacare will be better for Americans by allowing them Low Premium high quality prices, tax saving HSA’s and better choice in medical care.