High Deductible Health Plans and Health Savings Accounts Explained:

With the advent of health savings accounts in 2004, many people started hearing about high deductible health plans for the first time. In the past, many people made the decision on a health care policy based on a lower deductible and somewhat higher monthly premium, in the belief that this would save them money.

However, with the ability to use a health savings account to make tax-free payments for medical needs, this myth is being exposed. A health savings account allows you to find an insurance policy that is more suited to your needs, and over time, a policy that will end up saving you more money than a lower deductible plan could.

The only type of health insurance plan that is eligible for an HSA is a high deductible insurance plan. This means that your health insurance deductible must be greater than $1000 per year. In addition, a high deductible insurance plan must not have a co-pay or it will not be eligible for an HSA.

What are some of the features of a high deductible health insurance plan that can make it more attractive, both in the future and right now?

Greater Freedom of Care

The majority of high deductible insurance plans allow their policyholders more freedom in selecting their primary care physician, and greater access to treatments. If you have been playing an HMO game, this amount of freedom can be very liberating. Although there are some HMO's that are HSA eligible, the majority of high deductible insurance plans are PPO plans, and will offer you the freedom you need and the access to health care options that are necessary.

Preventative Care Services

High deductible health insurance plans also offer preventative care services that allow you to have coverage for routine check-ups and necessary screenings. In many cases, these procedures will have "first dollar" coverage after a small deductible is met for preventative care. Other high deductible insurance plans even offer complete coverage for preventative care services as long as the dollar amount falls below a set amount, such as $300.

Tax Savings

If you use your HSA to pay for your insurance premiums and health care needs, the amount of money that you spend is not subject to taxation. In addition, the money that you contribute to your HSA is also tax-free.

Earning Potential

An health savings account can accrue interest in one of four ways: (1) Standard Interest Bearing Account, (2) A CD interest account, (3) A Money Market Account and (4) A Mutual Funds Account. This interest is not subject to taxation. In short, your health care needs could be completely taken care of by the interest that you earn on the money in your HSA, and your out-of-pocket expenses can be greatly lessened.

Roll Over

The contributions that you make to your health savings account remain in your account and rollover each year. This allows you to make even more money with interest, still tax-free, and have a greater cushion should you need more assistance with your health care costs in the future. For example, if you contribute $2650 every year to your account, and only use $1000 per year to pay your heath insurance premiums, at the end of five years, you would have at least $8250 put aside for your health care.

In addition to this amount, you would earn interest each year on the money that is kept in your account. As the money in your health savings account increases, the amount of interest that you earn increases as well.

Preparing for Long Term Care

The worry of how to pay for long term care increases as we age. Many insurance policies and Medicare do not offer complete coverage for long-term care options. You will be able to use your HSA funds to pay for this care, tax-free, as long as it falls under the "qualified medical expenses," set down by the IRS. You can read more about these qualified expenses in IRS Publication #502 on www.irs.gov

The features and benefits of HSA's and high deductible insurance plans will continue to increase as new regulations and standards are passed each year. It is important to keep up-to-date on these changes as the health care industry improves on what Congress has begun for Americans.

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