Many experts are predicting that the cost of health insurance will begin to rise next year, due to the many changes the Affordable Care Act will bring. To help offset some of those costs, many consumers are looking at a high-deductible individual health plan, coupled with a health savings account, to make medical care as affordable as possible.
As this option is becoming more widespread, more individuals are tuning into the benefits of a health savings account as a means of maintaining cheap medical insurance over the long term.
What is a Health Savings Account?
Many people are familiar with flexible spending accounts, which allow you to save pre-tax income in a special account earmarked for medical expenses throughout the year. The biggest drawback to combining a flex account with an Individual Health Plan is that any money left in the account at the end of the year does not come back. Health savings accounts also provide the ability to put pre-tax money away for medical bills, but these accounts can roll over from year to year.
The health savings account is only available with individual health plans that have high deductibles. For individuals, the deductible must be at least $1,200, and for families, the deductible minimum goes up to $2,400.
The health savings account can grow from monthly contributions, taken directly out of your paycheck, or by a lump sum payment. Some employers also contribute to an employee's health savings account to help offset some of the deductible amount on their individual health plans.
The Benefits of an HSA
There are many reasons to consider a health savings account including:
• The ability to accumulate a balance from year to year, helping individuals plan for major medical expenses or even retirement
• Pre-tax savings that is never assessed a tax amount, as long as the money withdrawn from the account goes toward legitimate medical expenses as laid out in your individual health plan
• The option to move a health savings account from one employer or bank to another if you change jobs
• Most high-deductible individual health plans offer cheaper premiums, so you give less to the insurance company and put more into your own health savings account
• Employees who do not have a health savings plan option through their employers can also find HSAs through banks in their area
If you use money from your health savings account for non-medical expenses, there is a tax penalty assessed on the withdrawal amount if you are younger than 65. The penalty amount has been 10% of the withdrawal, but that figure is going to jump up to 20% next year.
Health savings accounts are filling a niche in a period of rising health care costs and more expensive individual health plans. These accounts allow individuals to save for potential medical costs without paying taxes on the money. They are also offered as a complement to high-deductible individual health plans to make health care costs more affordable to these members. If you are considering a high-deductible, cheap health insurance option, evaluate whether a health savings account is the right option for you.