A Health Savings Account is an alternative to traditional Health Insurance, it is a savings product that offers a different way for consumers to pay for their health care. In order to take advantage of the tax benefits of an HSA you must purchase a High Deductible Plan. The concept behind the HSA is that you are benefiting from any money that you put aside into the savings account and do not spend on health expenses. This will be savings to you. The idea is to put aside the money that you are saving by not going with a lower deductible/co-pay plan, to gain interest on this money and potentially accrue more than you would have spent if you gave it all to the insurance company. It really needs to make sense when calculating the savings.
Most high deductible plans are designed to pay 100% after the deductible. However, many companies are offering 80% plans and unique designs to offer lower priced plans. If you are a family, the deductible is an aggregate deductible. This means that the health expenses for each person in the family contribute to the one family deductible and this deductible must be met before anyone receives benefits. Some companies offer embedded deductible HSA plans. The embedded deductible plan has an individual deductible embedded within the family deductible. This means when each member meets the individual deductible they can receive benefits. Embedded deductibles are what people are generally used to when they have a traditional PPO health plan. The motivation to purchase a high deductible plan is to save monthly premium and to contribute money into the HSA account to pay for your expenses up to the deductible as well as other health related expenses that are not covered by the health insurance plan. Expenses such as dental; chiropractic; vision, etc… There are limits to how much may be contributed to a HSA plan.
Contributions are tax-deductible and withdrawals are tax free when used to pay for eligible medical expenses. The account balance earns interest and any unused dollars roll over from one year to the next so your account can keep growing to meet future health care costs. If you were to withdraw any money prior to age 65, there is an IRS penalty equivalent to a tax qualified plan, 10% as well as the tax consequences.
When using providers in network, your health expenses will be discounted according to the contractual discounts. The discounts for physician visits are approximately 15 - 25% while, lab and x-ray can be as much as 80%. It works like this: The claim will be sent to the insurance company who will process the claim and send the claim back to the doctor’s office with the contracted discount. You are responsible for the discounted amount, which can be significant. You are basically responsible for all medical expenses, RX, etc… until you reach the deductible.
Preventative benefits that are mandated by the state fwill be paid at 100% up to the maximum limit and are not subject to deductible. Benefits such as child immunizations and wellness check-ups, mammograms, and prostrate screening are examples of mandated benefits.
When considering whether to go with an HSA, it is important to calculate the anticipated medical costs for the coming year. If you are the type of person or family that hardly goes to the doctor and you are saving a considerable amount of premium to go with a higher deductible, then an HSA plan may be a plan to consider.