Just What Is A Health Savings Account?

From the Harvard Business Site:

Health savings accounts (HSAs) are tax-protected savings accounts connected with a high-deductible, low-premium plan. Most HSAs provide for a fully covered annual physical and then a high deductible for any other medical needs. The HSA account carries over year to year and can be used tax-free to pay for any medical, dental and most alternative medicine treatments. Upon retirement HSA funds can be withdrawn without penalty for retirement (however funds used for expenses other than medical are taxed as income).

Sounds simple.. so why isn’t everyone on one.

Probably because employers haven’t jumped in.. yet.

The plan makes a lot of sense, and it has great benefits:

1) You allocate a part of your premium to a savings account. This is forced savings and comes from money that was being spent already. This money follows you when you leave jobs and grows each year.

2) You change your insurance to a high deductible plan, saving close to 70%. This means you’ll be covered for anything over the deductible, of say $5,000.

3) Overall the cost of insurance drops… up to 40% for a family. This is after you take the savings account contributions into account.

The real benefit to the overall system is that because you are paying cash for doctor visits, and regular medical care under $5,000,you let the doctor know you have an HSA – which leads to getting a discounted rate.

Doctors are willing to give a discount because they get the money at time of performing the service. One of the largest challenges doctors face is cashflow, as the health insurance companies can take months to process payments.

When patients begin to get the sense of the real cost of health care, they become more responsible in contriolling it.

Everyone wins.

And with an HSA, you actually build financial security over the long haul…

I’d be interested in hearing from anyone that is on a Health Savings Account plan. Let me know how it’s working out.

photo credit: Liutao