Is A HSA Plan For You?

You may feel that an HSA plan sounds great, at least when you read about it on paper. But do you really know how it works and what your personal out-of-pocket expenses can be.

Let us begin by first defining Health Savings Plan and High-Deductible Health Plan. These terms are used interchangeably, but each serve a different, but collective purpose in your catastrophic health plan coverage.


Health Savings Plan Defined

A health savings account is attached to a high-deductible health plan, which is usually referred to as "catastrophic coverage". The HSA is the method in which you contribute and pay for the high-deductible plan.

The HSA was created in 2003, with the purpose of controlling health care costs. Companies and government theorized that consumers would be more careful spending their own money on health care, and doctors would have an incentive to lower their rates because they would be competing for the consumer's business.

High-Deductible Health Plan (HDHP) Defined

A high-deductible health plan is pretty much, what it sounds like - it is an insurance plan that requires the plan participant to pay all medical expenses until they have met their deductible amount.

The deductible amount is based upon the plan that the individual chooses, or what your company chooses for you.

How does an High-Deductible Health Plan Work

A high-deductible health plan, as it implies, will not pay any of the medical expenses you may incur until your high deductible has been met. Thus, the money for paying for your expenses will come either out of your pocket, or from your HSA account.

HSA Administrator Rules

In most cases, your HSA will be administered through a bank. Be aware, that there are rules that you need to follow when it comes to withdrawing from your account. For example, you may not be able to make more than three withdraws in a month. If you go over this amount, you will have to pay a penalty fee. To avoid this fee, many have placed their medical expenses on their credit card, and then withdrew the amount at the end of the month.

Bottom line, whoever administers your HSA account, be sure that you know all charges that can be placed against your account.

There are benefits to an HSA, as well as, tax advantages.

• Money deposited into an HSA account is exempt from income tax. (However, you do have to report your HSA earnings within your federal and state taxes.)

• Money withdrawn for medical expenses, which can include everything from glasses and dental is tax free. However, you may find that if you use your funds for glasses and dental care, you may not have any money left within your account for any medical expenses that you may incur during the year.

• HSA money is portable. Your HSA moves with you, if you change jobs.

• Money not used or withdrawn earns interest.

• After age 64, money can be withdrawn from the account for any reason. It would be wise to do additional research within this area, some rules do apply.

• As you age, the more you can deposit within your HSA account, it is called a catch-up contribution. However, there are maximum limits that the government will allow you to put into your account on a yearly basis. For 2011, the Single contribution limit is $3050, the family contribution limit is $6150, and a catch-up contribution (additional money that can be contributed during the year for people 55 or older) set at $1,000.

• Preventive care benefits. Mammograms and physicals are free. (Due to new Government Rules.)

• Unlimited health coverage. (Due to new Government Rules.)

• People have a tendency to forgo going to the doctor because it will deplete their HSA or they have nothing in their HSA Account. (Note: I have found this a common occurance).

• People on maintenance medication have either skipped their medication, cut their medicine in half or found alternative medicine. All of which, caused additional health risks and problems in the future.

• Parents of a young family have gone without the care they need, usually waiting until they had no choice put to go.
• Incentives for doctors to decrease what they charge their patients were not realized, as assumed by Congress.

As you can see, most of the drawbacks are associated with the availability of funds to pay for health care.

To conclude, before deciding on a HSA Insurance Plan you must weigh the following issues, your age, your health, and if you can handle the financial burden that a HSA Insurance Plan may place upon your living situation.