Should I Buy A Health Savings Account (HSA) Policy?
The Health Savings Account (HSA) concept is a fairly recent addition to the choices that consumers have in determining what type of individual health insurance to purchase. In summary, a higher deductible health insurance policy is purchased and then the government allows a separate, side fund to be established to fund that deductible. There are no doctor co-pays or any other type of coverage until after the deductible is met, and usually, the coverage is 100% after that up to a lifetime maximum benefit of say, $3,000,000 to $5,000,000.
The deposits to the side fund, called the HSA account (Health Savings Account), become tax deductible from a Federal Income Tax standpoint, the moment they are deposited. Any interest earned is tax deferred, and not taxed at all if used for allowable medical expenses. Any money in the HSA account that is not used during a calendar year can be carried over to following years and used for medical expenses in succeeding years. Money that is in the fund at retirement can be drawn out at that time, however it will be taxed as ordinary income.
So, in essence, there are two vehicles involved in a Health Savings Account – the high deductible health policy, and the separate side fund, also called the Health Savings Account (HSA). These two vehicles work in concert with each other to form the coverage for the individual or the family. The lesser expenses, such as doctor visits, medications, tests, and over the counter medications are paid out of the HSA account, and more substantial bills such as hospital stays and more serious illnesses would potentially be paid by the policy itself, as these expenses accrue past the deductible.
Typically, a deductible would be in the $2,500 to $5,000 range for individuals, and the $5,000 to $10,000 range for families. More companies will have just one deductible for the entire family, and 100% coverage after that. Some companies will offer an accidental benefit and other voluntary benefits in addition to the main policy.
Tips on determining if a Health Savings Account (HSA) health insurance plan would be right for you and your situation:
- If you currently only see a doctor once or twice per year and take no, or few medications, an HSA could be very advantageous for you.
- If your health is good and you like the possibility of putting money aside to be used for medical needs, yet could be carried forward to future years if you don’t use it, the HSA concept would appeal to you.
- If you are disciplined enough to set aside money, on a regular basis to fund your account, then you will have money to pay the lesser expenses on a tax deductible basis. This would be an advantage to your in having an HSA account.
- In most cases, people who have situations outlined above, will save money with an HSA plan vs a more traditional plan if the combination of the HSA fund deposits and the premium for the high deductible health insurance plan is less than the premiums for a more traditional plan that has doctor co-pays and prescriptions coverage. For people who would like to cover some of the more basic health costs themselves, but want more comprehensive coverage for major expenses, the Health Savings Account concept can make sense. It gives people a chance to accumulate money in the side account (HSA account) to fund those expenses on a tax deductible basis. Any money not used in any given year is then carried over to the next and succeeding years. Money that remains at retirement can be used for that purpose. While this plan may not be for everyone, it can make a lot of sense for people who have the discipline to fund their HSA account over time and are willing to pay basic expenses themselves.
To learn more about how a Health Savings Account plan could work in your situation, you should go to: More on HSA Plans and Quotes.
HSA questions people ask
- Does anyone have an insurance policy, with the HSA account? if so how do you feel about it?
- Can I keep my HSA account after I cancel my policy?
- Is it possible to obtain a policy that complements an HDHP?
- Where did you open an HSA?
- What happens to the money in a health care savings account when you are no longer eligible?
Share your thoughts with us. What is your opinion of HSA Plans?