7 Things to Know About Health Savings Account Plans

 7 Things to Know About Health Savings Account Plans

Health Savings

Health Savings Accounts (HSAs) are very popular Since their introduction in 2004, approximately 2.5 million Americans have enrolled in these so-called consumer-oriented health plans.

But unfortunately, HSA plans aren't for everyone.

Here are some tips to help you consider whether an HSA will benefit you and your family.

 7 About Health Savings Account Plans

1. An HSA plan can reduce health care costs by an average of 40% for many people.

However, some people will not realize any net savings. Those most likely to realize significant savings are people who pay all of their health insurance premiums, such as the self-employed, who are in relatively poor health and have few medical expenses.

2. The health savings plan restores freedom of choice.

An HSA plan puts control of their own health care back to individual consumers. This also means that each individual must be more responsible for their own health care decisions.

This self-sufficiency approach is not always popular or appropriate for everyone, especially those who are comfortable with HMO-type "co-pay" plans.

3. health savings accounts reduce income taxes.

Every dollar contributed to your HSA is deducted from your taxable income in the same way as contributions to a traditional IRA, whether you spend it or just save it.

Interest and investment earnings in an HSA accumulate tax-deferred, just like a traditional IRA. Unlike an IRA, withdrawals are tax-free when used to pay for qualified medical expenses.

In many situations, new account holders can almost fully fund their HSA with money saved on premiums from a higher-priced older plan.

By storing all or most of those savings in an HSA, the account holder earns additional instant savings in the form of reduced taxes.

4. You must have a suitably qualified high health insurance policy prior to

You can open a health savings account.

One of the biggest misconceptions about HSA plans is that any high-deductible insurance policy will qualify the policyholder to establish an HSA account. The IRS regulations, however, are quite specific. Not just any policy with a so-called "high deductible" will suffice.

It is important to be sure that you are insured under a properly rated policy. Your best bet is to work with a qualified and licensed health insurance broker who has experience marketing appropriately rated HSA plans.

5. You must be insurable to qualify for the HSA-qualified health insurance policy.

Since most people do not have a properly qualified high-deductible insurance policy, they will need to change insurance plans to be eligible for an HSA.

Unless coverage is offered under small group reform laws (generally groups with 2 to 49 employees), the new high-deductible policy will be individually insured by an insurance company.

This means that some "pre-existing" conditions may not be fully covered. Alternatively, some companies may choose to cover certain "pre-existing" conditions in exchange for slightly higher premiums.

Unfortunately, some health conditions simply make an individual uninsurable (examples: diabetes, chronic disease, heart attack, etc.).

Underwriting requirements vary by state, which is another reason to trust an experienced health plan broker.

You shouldn't switch to an HSA plan when managing your existing medical expenses is more important than saving up-front health insurance premiums. Don't change health plans:

In the midst of ongoing medical treatment; after a major health problem has been diagnosed; or if any family member is pregnant.

In general, qualifying is relatively straightforward, i.e. no medical exams, etc. Most insurance companies that offer HSA coverage will issue it based on responses to your application, perhaps accompanied by a follow-up phone interview.

In some cases, medical records may be requested and companies always reserve the right to order a paramedical exam.

6. Although HSA insurance premiums are low, they are not always as low as you might expect.

This happens for one main reason. Simply put, the underlying insurance policy is just that – a health insurance policy.

Even though you have a "high" deductible, as required by law, the insurance company must still offset the risk it is taking on the amount of the deductible, which it does by charging premiums.

Many companies offer policies with "a deductible" to which all family members contribute.

With those plans, it's not uncommon for premiums for a 5,000 family deductible with 100% coverage after deductible to be comparable to a 2,500 "per person" deductible plan with 80/20 coverage after deductible.

The lower premiums are just one element of the lower net cost achieved with an HSA plan.

The low net cost of an HSA plan is achieved after taking into account the lower tax benefits made possible by the tax-deductible contribution to the HSA account.

So, if your main concern is getting the lowest possible gross premium, you may want to consider a high-deductible, non-HSA policy, especially if you don't see the benefit of contributing to a tax-deductible savings account.

7. An HSA gives you the best chance to control increases in health insurance rates.

Make no mistake: you will have rate increases with your HSA insurance policy.

Because an HSA-qualified policy is still a health insurance policy at heart, there is no logical reason to assume that an HSA policy would be immune to rate increases required by an insurer to continue paying claims and remain in good standing.

the business. But what you can expect is that the actual dollar amount of any future rate increases will be substantially lower compared to traditional health insurance plans (regular PPO and HMO plans). T

his is because insurers base increases on percentages, and the same percentage of a lower base premium results in a lower dollar increase. It is not a perfect solution, but it is the most cost effective solution for many qualified people.