What are Health Savings Accounts and Should I Have One?

While Americans are watching their medical premiums rise each year, we keep hearing about options that once we thought were not good ideas.  Now, that has all changed because of the continued spiraling of costs and lowering of benefits coverage for those who are insured.

What is a Health Savings Account (HSA) and how can it benefit me?

Consumers have always had to shoulder a portion of the costs of their health care plans in the form of premiums, deductibles and things like co-pays for doctor visits.  Now an HSA can be set up to help pay for costs associated with high deductible health care plans and do so from a tax-advantaged position.

Since 2003 when HSA legislation was signed into law, these health accounts have steadily taken hold.  The intention was to develop a plan that allowed anyone in any tax bracket to participate and put money into a savings account that could accumulate interest and have tax benefits not unlike an IRA.  The consensus is that the more financial responsibility is shouldered by the consumer, then the more concern will be towards costs of health care.

You can establish an HSA on your own or through your employer.  Most major health insurance companies participate in the offering of HSA options.  Along with a Consumer Driven Health Program, a HSA will help bridge the gap between what you owe as a consumer vs. what is paid for by your health care plan.

Money can be deducted from your weekly paycheck in order to fund your account.  The amount is up to the consumer and the goal is to reach the high annual deductible of your health care plan.

You are allowed to make withdrawals from your HSA for non-medical reasons, but those are treated much like a withdrawal from an IRA and are taxed upon their distribution.

One difference in a HSA is that you do not have to use the money on an annual basis or lose it, but it continues to grow in the account as long as you place it there on a regular basis.

While there is some controversy over the HSA and whether they help or hurt health care coverage for consumers, they have enough advantages to be worth considering.  If you are in poor health, you might find them restrictive.  But if you are in generally good health, they can be a good way to save long-term for medical expenses.  A HSA provides a security blanket against future events, much like any other investment plan affords to those who take part in them.