Health Savings Accounts, a Primer

So, what’s a Health Savings Account, and why should I care?

One good reason is because they are often less expensive than traditional health insurance on a monthly basis!

You should also care because health insurance is expensive and most people are healthy – I mean, health insurance simply would not work if most people were sick – right?

So, think about your current situation – if you and your family are reasonably healthy, an HSA is worth considering. If you have young children, playing soccer or football, this might not be a good idea… wait a few years.

A Health Savings Account (HSA) is an account where you can deposit tax-free money to be used for future medical expenses. The HSA must be used in conjunction with a High Deductible health insurance plan.

Ah, now you understand, young kids, accidents, lots of emergency room visits… a high deductible is probably not a good idea.

When my children were growing up, I went to the emergency room with one child who had a soccer accident and met my wife coming out of the emergency room with another of our kids who had had a softball accident. True! But now, the kids are all grown… our insurance needs are very different. Take a moment and examine yours.

Pros:
· An HSA uses tax free money to pay healthcare expenses.
· It’s portable; you own the money; like an IRA
· An HSA travels with you; your money is not tied to your job.
· Some companies match contributions to HSAs.
· Earnings grow tax free (just like an IRA).
· Rolls over each year, you don’t lose it if you don’t use it
· Can invest the money to boost long-term returns
· You can even will your HSA to a beneficiary (but personally, I’d spend it on a cruise first and pay the penalties)

Cons:
· You’ll have to personally pay for everything until you have reached the deductible and/or coinsurance maximum of your health insurance.
· Best for healthy people, if you are not, this approach just is not right for you.
· IRS early withdrawal penalties and restrictions may apply on IRA accounts
· The account and maintenance fees can be high or free; be careful here.

There were more pros than cons… this is usually a good thing.

The bottom line on this is actually quite simple: If you take more of the risk with a higher deductible, the monthly fee for your health insurance will be less. Put the savings (plus a little) in an HSA where you save tax free money to use for the things your insurance doesn’t cover. If you are healthy, the money in that HSA is yours (not the insurance company’s).