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Health Savings Accounts in California

If used properly, a Health Savings Account is a wonderful boon for the individual and also the economy. Similar in methodology to the Individual Retirement Account, and instituted by government as a means to encourage the acceptance of more personal responsibility for health care, a Health Savings Account is yet another opportunity for the individual to address their own health care and also reap valuable financial benefits through the taxation system.

Dedicated Account

Essentially, the consumer of health services will open a dedicated account into which deposits will be made over time. Each of these deposits are tax deductible and for the astute, can represent a method of paying less tax and receiving a financial benefit in real terms. The money accumulating into the account is used to pay for medical expenses as they arise, and so the individual is able to be personally responsible for effectively insuring themselves in this respect.

Used in conjunction with a high deductible health insurance plan, almost any eventuality is foreseeably planned for, as in the event of catastrophic or unexpectedly large medical expenses arising, the high deductible threshold is breached and the insurance policy will assume liability for the health care charges suffered.

In this sense the private health insurance market is optimized to benefit all concerned, where the insurer is comfortable accepting a low premium in return for the majority of medical expenses being paid for by the individual, with the probability of a large claim remaining relatively low. The individual consumer receives security in the knowledge that if the unthinkable does in fact occur, a safety net lie in waiting.

Limits to Prevent Abuse

In addition, the Health Saving Account earns interest over time, carries forward the balance from year to year, and any medical expenses paid for from this account are themselves exempt from any particular goods and services tax that may apply.

The individual is under no obligation to deposit a predetermined amount and is free to plan finances in total autonomy, however in order to prevent abuse of the system and the deprivation of the community of much needed taxation income, the maximum contribution for the individual is $2 900 and $5 800 for families.

The deductible amount on the insurance plan must be a minimum of $1 100 for individuals and $2 200 for families, with total deductible and out of pocket expenses not exceeding $5 500 for individuals and $11 000 for families. If other health insurance plans are maintained, they need to conform to the requirements of the Health Savings Account or they need to cover services other than those covered by the Health Savings Account and its companion high deductible plan.

Typically, an administrator of a Health Savings Account will charge a small fee, but the individual will be provided with a full itemization of their medical health expenses and deposits in order to claim these monies as deductions to their taxable income.

When an individual reaches the age of 65, the amount can be withdrawn from the Health Savings Account and used for non medical reasons.

This type of encouraged savings is prevalent in other economies such as superannuation, and income insurance. Often governments that adopt this type of personal responsibility provide an incentive to the individual by making a pro rata contribution commensurate with the individual's deposit. Such accounts are in effect locked savings and extract money from the economy. This in turn provides security not only for the individual but the economy as well as inflation is dampened when such systems are employed in the economy.

The future solution for a nation of large proportions such as the United States and also the State of California, may be to provide a contributory incentive scheme such as outlined above, as an alternative to an immediate universal system of health care. 

 

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