10 Things You Should Know About Health Savings Accounts
by Health Insurance , OnlineAdviser at MedSave.com
Editor' Note: In January 2004 Medical Savings Accounts were effectively replaced by Health Savings Accounts. For purposes of the discussion topics in this article, both terms apply and the two terms are used interchangeably throughout in this article.
Medical Savings Accounts (MSAs) and Health Savings Accounts (HSAs) are over-promoted as a solution the salvation of those in need of affordable health insurance plans. Certainly they offer great tax advantages, especially for self-employed individuals. Forbes called MSAs "Super-IRAs" and Business Week wrote "almost too good to be true". Kiplinger's Personal Finance Magazine said "if you are self-employed, you should jump at the chance to open an MSA". The American Medical Association published a series of articles strongly supporting MSAs and these plans are promoted on the AMA's insurance Web site. Both the Clinton and Bush administration and almost all federal lawmakers on both parties include MSAs as part of the solution to the national health care crisis. The insurance industry and the employee benefit industry strongly support the use of MSAs and HSAs. Business think tanks across the country repeatedly focus on ideas to expand the use of this promising financial tool in the marketplace.
Here are some things you should know before you consider switching health plans
to a HSA:
1. HSAs cut overall long term health costs by about 1/3 for most people but they are not designed to cut your immediate cash outlay for medical plan. For example, if your family pays $650 per month for total medical and dental coverage right now, you should still plan to pay $650 per month in a new HSA plan. The only difference is that about half of your cost will go directly into your own account and only about half will go to the insurance company. Over the long run, your account will be spent more effectively on your behalf than the money paid for insurance premiums. But it takes time (usually about a year) to build up enough reserve in your account to be fully secure using higher deductible insurance. HSAs are not effective if you already have significant pre-existing medical conditions because the insurance will either not be available or will be more expensive than other available options. If your primary goal is to reduce he cost of health insurance, HSAs are never the best option. Web sites that specialize in low cost health insurance like MedSave.com can point to some less expensive health insurance plans.
Many people who apply for a HSA plan do not qualify.
Those most likely to save the most money and be approved for coverage are
young, self-employed, and healthy with historically few medical expenses.
Those over age 60 generally do not realize any savings, but may achieve an
improvement in the quality of health care by moving away from the managed care
healthcare systems to a private pay system.
Qualification, rating and enrollment for individual and group HSA plans are
handled by www.FreedomBenefits.org.
A separate Web site
now handles qualification, rating and enrollment for individual HSA plans.
3. HSAs put individual consumers and their personal physicians back in control of their own health care. These plans do not require use of pre-authorized providers of treatments. This also means that each individual must be responsible for his/her own health care decisions. This approach of self-reliance is not always popular or appropriate for everyone, especially those who have become comfortable with HMO plans. HSAs are designed to encourage efficiency and cut waste in health care. But this also means that there is a chance that you may decide to bypass some medical testing or treatment in order to save your HSA money.
reduce income taxes. The amount you
elect to deposit into your HSA account each year is deducted directly from your
taxable income in the same manner as an IRA account - regardless of whether you
spend it or just save it. Interest
and investment earnings in an HSA are also tax-free. For the average person, for every dollar that you put into
your MSA, your taxes will be reduced by about $.25 even if you do not incur any
You must have a qualifying HSA-type health insurance plan in place first
before you can open a Health Savings Account.
Otherwise the tax deduction will not be allowed.
It is possible to open up a HSA Account with a separate company than your
HSA insurance but this is usually not recommended and will certainly cost you
significantly more. It always makes
more sense to have your MSA deposit account and your insurance with the same
It takes 3-6 weeks to actually get a HSA plan started and delivered to
you. Short term coverage is
available during the interim period at
www.MedSave.com. Coverage may
be bound or issued within 24 hours but it takes longer to receive ID cards and a
The most popular type of low cost HSA plans are not available to
individuals and businesses residing in AK, HI, KY, MA, ME, NJ, NC, NH, NY, RI,
UT, VT and WA. Other options may be
available but the cost and benefits are not as attractive.
You should not use a HSA plan when the management of your existing
medical costs is more important to you than achieving a savings in insurance
premiums. Do not change health
plans in the middle of ongoing medical treatments, when a major health issue has
been diagnosed, or when any family member is pregnant.
There is usually no fee or commission for health savings accounts
although some custodial firms do charge a fee.
Completely free no-load Health Savings Accounts are available at
. The amount that you deposit and withdrawal from your HSA are
totaling at your discretion (up the maximum deduction allowed each year).