Is a Health Savings Account Right for You?

What is a Private Health Savings Account?

A health savings account is a special account that individuals in the United States can use to pay for certain medical expenses. It is  “tax-advantaged” similar to an IRA. The idea of the health savings account (HSA) is to help offset high-deductible health insurance plans and thus allow people to pay lower premiums while still having health coverage. The tax advantage offered by the account makes it possible for U.S. taxpayers to not only put money aside for future health insurance claims, but also allows individuals to avoid taxation on a portion of their income. Let’s look at the benefits of private health savings accounts to determine if an HSA is right for you.

The Basics of an HSA

With Obamacare providing insurance for those with incomes below 400% of the Federal Poverty level you might think that affordable insurance is now the law of the land. But for many people in the middle income brackets, full insurance coverage has actually become more expensive. Many individuals are switching to higher deductibles because these policies are cheaper. And high deductible policies, i.e. catastrophic coverage policies, combined with an HSA allows people to save extra money, money they don’t pay taxes on, to use for the costs associated with a high deductible. The result is that people with a catastrophic coverage policy are able to afford regular medical care and routine health maintenance.

 Who Is Eligible for a Health Savings Account?

HSAs were established by federal law in December 2003. Since then, state laws passed between 2004 and 2009 have augmented and enhanced the original federal legislation. Like all health-related legislation, families must meet certain eligibility requirements to enroll in an HSA. The requirements stipulate that a person:

• Must be must be covered by a “high-deductible” health insurance policy
• Is not covered by another plan (such as a spouse’s plan)
• Is under the age of 65 (the age when Medicare becomes available)
• Is not claimed as a dependent by another.

If you meet all four requirements, then you are eligible for a health savings account that can limit your out-of-pocket health expenses and thus allows you to afford enhanced coverage while protecting you from unexpected medical costs. Here is a look at a few of the benefits offered by HSAs.

The Benefits

Decreased Health Care Spending

According to a study from the Employee Benefit Research Institute (EBRI), an HSA can reduce health care spending by as much as 25%. This reduction is achieved by decreasing costs for medical treatment and pharmaceuticals. Reductions in spending on pharmaceuticals are particularly striking, allowing individuals to save as much as 47% on yearly medication costs.

Personalized Insurance

One of the major advantages of an HSA is that they are highly customizable. These plans are more affordable and so consumers have more choice in determining which doctors they can see, which hospitals they can use, and how long they need to wait for certain types of tests. The ability to control your health care and to make the health decisions you deem appropriate is, perhaps, the largest benefit an HSA offers.

Future Savings

Most HSAs roll over from year to year, which means that you can accumulate a substantial medical nest egg to help cushion future health care expenditures. Individuals and families who start early and contribute the full amount possible to their HSA each year can establish substantial health savings accounts that will help to protect them from future catastrophic costs.

With the advent of Obamacare, HSA’s have lost a bit of their luster but they still have a place in your financial picture under the right circumstances. After all Obamacare does not cover everyone. So if you are covered by a high deductible health insurance policy you should consider the tax advantages of adding an HSA.  Remember that as long as you spend the money from your account on health-related expenses, the money will never be taxed. So, not only will you get better health insurance and improved coverage with an HSA, you also have more discretionary income to spend as you see fit because your medical costs are covered by a tax-sheltered account. An HSA can be a win-win situation.

See Also:

• ObamaCare Tax Credit Calculator
• Nursing Home Versus Home Health Care
• Costs Associated With Home Health Care
• Putting a Lid on Health Care Costs
• Health Insurance Information and Procedures

Health Insurance: Navigating Traps & Gaps	Maximize Your Earnings With a Health Savings Account	Maximize Your Medicare (2014 Edition): Understanding Medicare, Protecting Your Health, and Minimizing Costs	Insurance for Dummies

About the Author:
Ron Sheffer often blogs about practical and smart ways to manage and invest money for the necessities of life.

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