Health Savings Accounts- A Health Insurance Option with a Future

Health Savings Accounts (HSAs) are consumer driven health plans that are gaining a great deal of attention today as the cost of healthcare continues it’s double digit spiral to out of control. In fact, this new plan may just help bring things back into control. The concept combines consumerism with a new set of healthcare expectations.

The most recent health insurance model included unlimited doctor visits, prescription drugs, and lab work on top of a major medical plan. Providers would order tests and even more tests to confirm their first tests. Insurance companies tried to control costs but the market demanded more and better care. As a result, the costs of insurance plans increased to meet the higher costs of better care. We deserve better healthcare but perhaps there is a better way to pay for it.

Think about how you insure your automobile. You have a deductible and maybe even have a higher deductible because you pay a lower premium. You pay for the little expenses yourself, like maintenance. Most years, you are an insurance company’s dream. You pay your premium and never call to report an accident. The insurance company made money. That’s how they make money; by assuming most years you will pay your premium and not have a claim. If you do have a claim in the future, they have accumulated their profit and even compounded it with investments. That’s how a Health Savings Account works. But you get the compounded accumulated profit.   

Think about your current health insurance plan. You have a deductible, doctor’s office co-pay and even prescription drug benefit. How often do you use these benefits? Most years you probably make an annual visit for your physical. Maybe you even get a prescription. That’s about it right? That’s just like the automobile example. You go for several years without a claim and that’s when the insurance company wins. Consider taking the place of the insurance company (self insurance), just a little and earning part of their profit.

Congress enacted into law Health Savings Accounts (HSAs) to allow us to save for future health care expenses. To reward us for providing for our healthcare future, they even offered some very nice tax benefits. HSAs are like IRAs for your health. An individual can invest up to $2900 per year and a family up to $5800 per year in a health savings account, decide how and where it is invested and deduct that investment from income for tax purposes. To take advantage of the HSA deduction you need to have a qualified high deductible health plan (HDHP). See, congress knows what the insurance companies know, that most years you can take a little more risk (higher deductible), save the money (premium) and invest it for future expenses. Save the savings! Let it grow tax deferred and have a fund for future expenses. As the fund grows, you can afford even higher deductibles (if it makes sense) without serious financial risk.

Another great feature of Health Savings Accounts is that, they actually offer the consumer far more choice. Does your current health plan cover dental, chiropractors, contact lenses, Lasik eye surgery or over-the-counter medicines? You can pay for all that out of your HSA account. So instead of letting the insurance companies tell you how to spend your money, decide for yourself.

Health Savings Accounts can also be part of your retirement plan. They are treated just like an IRA only with more flexibility. With an IRA you put money away for retirement and enjoy a tax benefit for doing so. If you withdraw the funds prematurely, you pay a 10% penalty plus tax, same thing with an HSA. But, if you withdraw funds for any acceptable health expense there are no penalties. At retirement when you withdraw from your IRA, you are taxed at a lower rate. With an HSA, when you withdraw you are also taxed at a lower rate but if you are withdrawing for health expenses then you are not taxed at all! So you got the deduction when you saved the money, it compounded and grew tax-free and you now get to withdraw it without ever paying a tax.

You can learn more about Health Savings Accounts or other health insurance options at All Insurance Matters Inc., 5 Rockingham Road, Windham, NH. 03087 (603) 890-0100 or visit our website www.AllInsuranceMatters.com