Health savings accounts (HSA) have grown in popularity among employers as they try to cut their part of health care costs and, at the same time, make their employees aware of just how much they are paying for medical care coverage. With skyrocketing insurance premiums, consumers are also taking a closer look at using an HSA to lower their overall health insurance costs.
What is an HSA?
First introduced to consumers in January of 2004, Health Insurance Accounts function similarly to savings accounts. The deposited funds, however, can only be used for qualified health care expenses. To open an account, consumers must have a qualifying high-deductible insurance policy. The primary benefit to individuals and families is that the money deposited into the account is not taxable. In addition, the funds do not have to be used in a specific time period. This means the unused funds can roll over into the following year or can even be combined into a retirement plan, much like a 401(k), or in the case of death, inherited.
Originally, the maximum annual HSA deposit was less than the IRS specified deductible limits. Later, Congress changed the limit-based deductible and set statutory limits. In 2011, the limit for individuals was $3,050 and $6,150 for a family. Regardless of the source, any contribution made into the account will go toward the annual maximum. If a participant is 55 years or older, the IRS allows the limit to be increase.
Is an HSA Right for You?
Whether an HSA is a good option for an individual or a family depends on several factors. Generally, an HSA, combined with a high-deductible health insurance plan, can provide the greatest benefit to Americans who are in higher income tax brackets, but who also have few yearly medical expenses. This option would typically mean a lower insurance premium, but this also means there are more immediate costs coming out of pocket until the deductible is met. The objective is to manage costs without sacrificing care.
It is possible to save money both in the short and long-term. Besides being able to deduct 100 percent of your health savings account contributions from taxable income, the funds in the account can also accrue tax-free interest. Using the savings account does not incur any penalties or taxes, as long as the funds are used for qualified medical expenses. The money can also be used for medical and dental expenses for any qualified tax dependent in the home. However, only expenditures for those covered by the insurance policy will qualify toward satisfying the deductible.
Contributing to an HSA account can be done by automatic withdrawal from an employee’s paycheck or by contributions made periodically using a checking or savings account.
Saving Money on Family Medical Insurance
With some creative thinking, a high-deductible, low-premium health insurance plan, combined with an HSA, can help cut insurance costs for the average family. For example, a family of four who pays $850 per month in premiums can significantly reduce their costs to $365 per month if the family rarely uses medical services and is in a relatively high tax bracket. By increasing the deductible to $10,000, and by adding an accident benefit that carries a $100 deductible for only $55 per month to cover emergencies, a family could cut their premium nearly in half. Each family should consider their expected medical needs and design their health insurance coverage accordingly.
By customizing health insurance coverage, good savings are possible. Online shopping for high-deductible health insurance and health savings accounts allows the consumer the ability to compare plans easily. MyReviewsNow offers health insurance agencies who can help you decide which provider is best for your needs.
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