If you are fed up with the high cost of health insurance, you should consider a health savings account (HSA). Health savings accounts enable you to pay for medical costs with tax free money. More than just a fad, the HSA is designed to transform health care.
What is a Health Savings Account?
Simply put, a health savings account (HSA) is an account where you can deposit money for future medical expenses. The main advantage of a health savings account is that, in most cases, you won't pay income tax on the money you deposit. The HSA was created in late 2003 and its popularity has increased dramatically ever since. Businesses like health savings accounts because they reduce costs for the company. Many employees have embraced HSA's as well, but a few remain wary about this innovation in health care coverage.
The health savings account is part of a larger movement referred to as consumer driven health care. The idea behind consumer driven health is that if consumers are given more responsibility for a larger portion of their health care costs, they will shop around for providers until they find quality care at the lowest possible price. The goal is to lower overall health care spending by using free market forces. The HSA plays a central role in this strategy.
A health savings account allows people to set aside a certain amount of money each year that will be used for medical costs. The funds in your HSA are used to pay for any medical expenses that your health care plan doesn't cover. The amounts you use for medical care can be deducted on your income tax return. You can use money from your health savings account for non-medical expenses, but you would have to pay income tax on those amounts.
If you're younger than age 65 and your medical care is covered by a high-deductible health plan (HDHP), then you are eligible to open a health savings account. Even if your employer contributes to your HSA, all of the money in the HSA belongs to you and is under your control. You can even invest the money in stocks or mutual funds to grow your health savings account more quickly.
Having a health savings account and high-deductible health plan can work in your financial favor, especially if you tend to be healthy. The premiums for health coverage with high deductibles are much lower than premiums for traditional health insurance. Using a health savings account allows you to put aside tax-free money to pay the higher deductibles. If you don't need health care, then you can let the money in your HSA continue to accumulate. After age 65, you can even use it to pay non-medical expenses without penalty. An HSA is also a smart choice for early retirees, because it can lower health care costs until they are eligible for Medicare.
Check to see if your employer offers an HSA-eligible health plan. Many larger employers have chosen to fund all or part of their employees' health savings accounts. If you’re not covered at work, you can purchase a qualifying health plan on your own and then take full advantage of your own health savings account.
When it comes to health care, everyone is looking for creative ways to reduce costs. Health savings accounts are more than just a fad. Depending on your age and health, they could be just what the doctor ordered.
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