Healthcare Solutions Examines Advantages of Health Savings Accounts
Every individual is different, and so are his or her health insurance needs. One of the most overlooked and perhaps misunderstood health insurance options is the high deductible health plan (HDHP).
- Chicago, IL (1888PressRelease) March 31, 2012 - This type of insurance has a higher annual deductible than most traditional co-pay plans. However, since insurance companies do not have to process and pay claims for routine or marginally expensive medical care, they can pass monthly savings on to customers. Plus, there is a maximum limit on the sum of the annual deductible and out-of-pocket medical expenses that must be paid for covered expenses.
To finance HDHPs, many people turn to Health Savings Accounts (HSA). The Federal government as a tax-exempt trust defines an HSA or custodial account that a qualified individual sets up with an HSA trustee to pay or reimburse certain medical expenses that may be incurred. In short, HSAs are similar to a personal savings account, only the money must be used for health care expenses. Money in the HSA can be used to pay the HDHP deductible. Undispersed money remaining in the account earns interest.
Grant Born, principal at Healthcare Solutions Team, points out the advantages of HSAs to his customers, and lets them decide if it is the best option for them.
"With a typical co-pay insurance plan, the insured continues to pay for services, even though the amount they pay is only a percentage of the total cost," said Born. "With the HSA or one-deductible program, the insured pays full price for services up front-but only until the calendar-year deductible is met. After that, the insurance provider typically pays 100 percent of the remaining covered expenses."
A simple way to think about it is that with co-pay plans the deductible signals the beginning of payments, with HSA the deductible is the end.
Money deposited into an HSA can be used for a variety of medical expenses, including services that are not covered by insurance such as maternity costs; vision care or Lasik surgery; alternative care, acupuncture and chiropractic services; mental, physical and massage therapy; dental services such as braces and teeth whitening; and even long-term care. If someone loses his or her job, HSA funds can be used to pay for insurance premiums, as well.
"One of the major benefits of an HSA is that you control your own money," said Born. "Many people think that if they don't use all the funds in account, they lose the money. But that's not the case. Unused money in your HSA rolls over and continues to grow tax-deferred."
Some insurers have their own banks and offer enrollment into an HSA at the same time as enrollment into the health insurance plan. Consumers do not need to set up an HSA account through an insurance carrier, though. They can use a qualified bank and invest money in mutual funds or other opportunities.
In addition to their flexibility, another major benefit of HSAs is that the money deposited is tax-free.
"It's a triple threat tax deduction," said Joe Eichman, principal at Healthcare Solutions Team. "The money goes in tax free, growth is tax deferred, and the money taken out of the account is tax free as long as you use the money toward medical expenses."
Healthcare Solutions Team recommends clients open an HSA and put as much money into the account as they expect to incur a medical expense. The account owner can move money from a savings account to an HSA. He or she also can transfer funds to an HSA one time only from an IRA without penalty. People 55 or older can do a catch-up contribution of up to $1,000. Also, an employer can contribute to an HSA and when doing so, the contribution it is excluded from income.
Born and Eichman agree that an HSA is an attractive health insurance option for customers who want to know what their worst-case-scenario, total-out-of-pocket costs will be. HSAs also appeal to those who are generally healthy but want to ensure they can cover costs for potential future health care expenses.
"We tell our clients that the rule of insurance is that it needs to pay for the things you can't afford to pay for yourself," said Born. "Is an HSA right for you? Ask yourself, would you rather pay the insurance company more every month or pay the doctor more only when you need it?"
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