These are no doubt difficult economic times, and some have chosen to go without health insurance due to a job loss or some other hardship. Instead of comparing health insurance rates in their area, they simply choose to wing it and go without coverage altogether.
With the advent of health savings accounts (HSAs) signed into law by President George W. Bush in 2003, HSAs have been gaining notoriety due to their benefits for healthy individuals. They’re one alternative to more prevalent plans such as preferred provider organization (PPO) or health maintenance organization (HMO) plans.
Let’s start with a little on what HSAs are and then get to if they’re right for you.
What are Health Savings Accounts?
According to Wikipedia on Health Savings Accounts, health savings accounts are tax-advantaged medical savings accounts that are available to taxpayers in the United States who are enrolled in a high-deductible health plan or HDHP.
When you put money into an HSA, the funds are not subject to federal income tax at the time of deposit. And, unlike the similar “flexible spending account,” funds accumulate and roll over year to year if not spent.
Funds within a health savings account can be used to cover qualified medical expenses tax free such as:
- Over-the-counter medicines or drugs where you have gotten a prescription for them
- and insulin.
How much can I put into an HSA?
In 2012, the statutory limits are $3,100 for an individual and $6,250 for a family. There is a catch-up provision for plan participants who are age 55 or over (currently set at $1,000).
How do I withdraw funds from an HSA?
Funds can be withdrawn from an HSA in a variety of different ways. Some plans include:
- Debit cards.
- Reimbursements by means of paperwork.
It is important to make sure that funds are withdrawn for documented qualified medical expenses only or income taxes and a 20% penalty will be applied.
What Are the Benefits of Health Savings Accounts?
Dave Ramsey has stated that “HSAs are great and when you have one, you don’t need additional medical insurance.” He goes on to say that “the HSA is the way to go if you’re healthy.” Why does he look favorably on health savings accounts?
When you have an HSA, you don’t need regular medical insurance. With regular medical insurance, if you have a major medical problem, you pay the deductible and then 20% of the costs (on an 80/20 plan) up to the stop loss.
He goes on to explain that with an HSA, you have a higher deductible, but many of the HSA plans available today pay 100% of your costs after you pay the deductible.
If you’re a generally healthy person and don’t expect to have major medical issues, having a health savings account can be a huge advantage as you hold on to the money you’re putting toward your health plan. When you have a medical issue, you pay with cash!
Plus, remember that when you pay for qualified medical expenses, you’re paying tax free. Bonus!
Are health savings accounts good for consumers?
From a larger economical standpoint, health savings accounts are good for America as health savings accounts put consumers in the driver’s seat. When you’re going out to purchase medical care, you feel the purchase – and therefore might shop around for more cost effective options. You might even be more inclined to negotiate the cost of services with your healthcare clinic!
This puts the power of the free market into the hands of consumers. When you consider the standard 80/20 plans, many people just pay their small copay without thinking about the overall costs. This allows clinics to charge higher prices for their services because there is no pushback from the consumer. Opponents of this viewpoint may argue that insurance companies might pushback on costs, but that leads me to my next point.
Insurance companies charge the consumer not only for actual coverage, but for marketing, government compliance, administrative expenses, and of course, profit needs. With an HSA plan, many of these costs are greatly reduced as the insurance company is less involved.
Is an HSA right for you?
Only you can decide. I highly recommend you look into health savings account plans in your area and compare standard health insurance rates. Head over to eHealthInsurance.com and search for “Health Savings Accounts.” Who knows, you might find that an HSA is the most cost effective option for you and your family!
Do you think health savings accounts are good for consumers? How about doctors? Leave a comment below!
Emergency image by taberandrew
President Bush image by Beverly & Pack