Health Insurance

What is a Health Savings Account?

Health Savings Accounts (HSAs) are savings plans that give you tax advantages when you pay for qualified medical expenses. HSAs allow consumers to deposit pre-tax dollars into a qualified savings account, when they are insured under a qualified high deductible health plan (sometimes referred to as an "HDHP"). Monies spent from the savings account must be for qualified expenses as set forth by IRS or penalties apply.

The qualifying health insurance policy must have a plan deductible of at least $1,200 for an individual policy or $2,400 for a family policy. These minimum deductibles change each calendar year and are set by U.S. Treasury and IRS rules.

The maximum contribution that can be made to an HSA in 2012 is $3,100 for single coverage or $6,250 for family coverage. Additionally, taxpayers who are 55 years of age or older (and not on Medicare) can make a catch-up contribution of $1,000.

The maximum out-of-pocket expense (including deductibles) that you can be required to pay in 2012 is $5,950 for single coverage or $11,900 for family coverage.

If you are choosing between a health insurance policy with a qualified HSA component and a traditional plan, here are some questions you may want to try and answer:

Do I want to save money for current and future health expenses?

HSA plans have two primary components - health insurance coverage and a tax-advantaged savings account. You can use the money in the savings account to pay for your current health expenses, but you also own the money in the account regardless of whether your insurance plan changes in the future. So, HSAs offer an opportunity to build tax-advantaged savings for current and future health expenses.

Which type of plan gives me a better financial value?

Do you prefer to save money on your premiums, in exchange for agreeing to pay out-of- pocket some of the initial costs of your health care services? Or would you rather pay higher monthly premiums in exchange for your insurer covering some of your health care costs from day one? With HSA plans you can put the money you save on your premiums into your tax- advantaged savings account to build interest; whereas with a traditional plan, more money is directed towards the policy premiums regardless of how much health care you need.

Have I considered the relevant costs of each plan?

To make sure you're not comparing apples to oranges, you should consider all of the cost elements associated with each plan option. Traditional plans may include: higher monthly premiums, a smaller deductible, as well as copays and/or coinsurance. HSA plans typically feature lower monthly premiums but a higher policy deductible. So depending on your health needs, a high-deductible plan may very well cost less overall than repeatedly paying for the traditional plan's copays and coinsurance.

Will I lose "unused" money in the HSA account?

HSAs don't have a "use it or lose it" provision; rather, they let you roll over unused savings from one year to the next, so you don't have to worry about ever forfeiting your money.

Is it difficult to connect the high-deductible insurance plan to the HSA account?

Since you need to select a financial institution to administer your HSA savings account, and the health insurer offering the HSA plan also has a financial institution available, it can make the process of setting up and using an HSA much easier and more convenient. Some insurers have their own bank and offer a single enrollment process so you can sign up for both the health insurance plan and the bank account at the same time. Also, one way to turn HSA funds into long-term health care savings is to invest that money in mutual funds or other vehicles; therefore you may want to ask the bank if any investment options are available.

Back to Top | Back to Health Insurance Home

• What is Traditional vs. Managed Care?
• Types of Major Medical Health Insurance
• What is a Health Savings Account (HSA)?
• Guaranteed-Issue Health Plans Including "COBRA" and "HIPAA"
• How Will I Be Impacted By 2010 Health Care Reform Legislation?