With the costs of health care rising dramatically every year, both companies and individuals are trying to find ways to lessen the financial pain. One option is a (HDHP) coupled with a Health Savings Account (HSA).
Many of you may already have this option, or your company is rolling this out in the near future. It can help cut costs and boost savings, but it isn’t right for everyone. There are a few facts to consider before deciding what is best for your situation.
A High Deductible Health Plan is exactly what it reads like: An insurance plan with a high deductible but a very low premium. It is available to anyone whether you are self-employed or an employee.
Upside: Saving money is a priority for most when it comes to insurance. The money you save by having a low deductible can help you pay off debt, or you can add it to your Health Savings Account.
Downside: High deductible means higher out-of-pocket expenses. For 2008, the minimum deductible for one insured is $1,100 and the maximum is $5,600. For families it is much larger with a minimum of $2,200 and a maximum of $11,200. Quite a bit more than you pay with a regular, low-deductible insurance plan.
Any amount up to that deductible is your responsibility, and there is little to no savings in price as with other plans, though you save money if you use a provider within your plan’s network, if your plan participates in one.
If you have prescriptions, be prepared to pay much more than you would with a traditional plan that just requires a co-pay.
To be eligible for a Health Savings Account, you must be covered by an HDHP and must not be covered by other health insurance that is not an HDHP. Exceptions to this would be dental, vision, disability and long-term care insurance.
The Health Savings Account offsets the HDHP with tax-free money contributed by you, and possibly your company. You add money to this savings account to save for any of the higher up-front medical expenses like doctor visits, prescriptions, etc. The money you save in this account is tax free if used for approved medical expenses.
The money stays with you and rolls over every year. So the healthier you are the more interest you will earn and the more money you will save. Some employers deposit money into your HSA as well to help with medical expenses.
Upside: You are more in control of your money and medical future. Your money earns interest and rolls over every year. A healthy individual with very little in the way of medical expenses can amass quite a sum of money.
You don’t incur taxes as long as you use the money for medical expenses. After age 65, if you use the money for something else, you just pay the tax, but not the 10% penalty. Think of it as another way to invest in yourself and your future.
Many plans come with a special debit card tied to your HSA account, so it’s easy to pay and cuts down on transfers and paperwork.
Downside: There are limits on contributions to your HSA. For 2008, an individual could contribute $2,900, and a family could contribute up to $5,800.
Taxes apply for any withdrawal from an HSA for non-medical expenses, along with an additional 10% penalty. Once you reach age 65, there is no penalty, but you still have to pay taxes for any non-medical withdrawal.
Moreover, with more control comes more responsibility. Unfortunately, people aren’t always responsible when it comes to saving. If you or a member of your household becomes extremely ill, becomes pregnant, or has an accident, and you haven’t placed enough in your HSA, it may be a longer way to the end of that high deductible than you thought. If you have trouble saving, or think you might not be able to put enough money in to cover the high deductible (especially if you are just starting with your HSA) you may want to look elsewhere.
There is no clear, yes-or-no answer. You have to decide. This can be a viable combo for employers looking to avoid rising health care costs, and it can provide a low-cost insurance option for healthy individuals and families.
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