Health Savings Account

What is a Health Savings Account?

HSA—Changes in the Insurance Industry

Over recent years, as the costs of health insurance started to sky-rocket, and as the American workforce landscape changed from group plans to individual plans, and as employers started to either downsize or reduce group benefits, it quickly became apparent to the insurance industry that changes were necessary to offer competitive insurance…thus the evolution of HSA’s.

HSA is an acronym for Health Savings Accounts, which is one of the largest expansions of government intervention in medicine in 40 years, a program approved by Congress in 2003, becoming law in January 2004.

The purpose behind the HSA is to offer the consumer an alternative to traditional insurance coverage, which normally features office co-pays, prescription co-pays and other routine features that consumers are accustomed to having available in a group policy. But these benefits were not used by every consumer and were thus costly to those who did not fit the mold.

The evolution of the HSA is a stride forward in giving consumers more control over their health care costs. By being able to manage their own costs, the consumer also would become more responsible in how money is spent.

Remember, under the traditional group health plan scenario, the premium includes the built in cost of being able to see your doctor anytime you want with a simple Doctor Co-Pay feature. Doctor’s visits are more accessible since they are only $20-$35 per visit. However, this feature in the PPO plans is costly, when most people see their doctor only one or two times a year. Many people now want lower premiums and more control of where their money is directed, paying only for the health care they are using.

The HSA Insurance plans have lower monthly premiums which reflect this growing trend in today’s habits. Most of the savings that the HSA plans enjoy come in savings from reduced doctor visits, X-rays, lab work & prescription medicines. Also, HSAs are High Deductible Health Plans (HDHP) which is another reason your premium can be lower. But an HSA savings account feature helps you pay that higher deductible.

The consumer is encouraged to place the savings or their premiums into an HSA account which can act as a “super IRA”. It provides for a savings feature whereby the consumer can deposit money into an HSA account, tax free (in 2010 an individual savings level is $3050 and a family is $6150). This money is used to pay your insurance premiums and other medically qualified expenses.

Here is how it works: Money deposited into a Health Savings Account is deductible from your annual tax return…pre-tax dollars. You may deduct the entire sum deposited into an HSA for qualified medical expenses and premium payments. Even if you spend all the money in your HSA on medical expenses during the year, the full amount that you deposited still is deducted from your adjusted gross income. Money in the HSA is interest bearing and is tax free. Money coming out of the HSA is also tax free for those medically qualified expenses.

Because of these benefits, we recommend that you do NOT pay any medical bill from your regular checking account, but pay them from your HSA account. The only time you would pay taxes on the money in an HSA would be if you used the money for a non-medical expense.

The idea behind the HSA is to have a savings account for your health needs that you control. The HSA account rolls-over on an annual basis and grows much like an IRA. As the HSA account grows, this gives the consumer additional options because they can then raise their insurance policy deductible to lower the premiums even more, because the tax free HSA account is covering their deductible.

HSA example of premium savings:

If your annual health expenses average $1,000 and you save $2,000 per year on monthly premiums, in ten years you would have saved $20,000 tax free if you contributed those savings into your HSA Account. Each company we represent offers an HSA qualified plan as part of their portfolio of quality health plans.

Monthly premium range:

                 Traditional PPO                                 HSA
Single person $300-$550 per month     $100- $300 per month
Savings per year: $2,400 - $3,000

Family Plan $800 - $1200 per month    $300 - $600 per month
Savings per year:  $4000 - $7,000

If you’re a healthy single person in this example, you would have saved $2,400 to $3,000 for the year. With this savings in premiums, you could easily pay for your doctor’s office visits and prescription drugs throughout the year.  On a 100% coverage plan, once you reach your plan deductible, all costs are covered 100% with most carriers.

Who Should Have an HSA Insurance Plan?

The HSA plans are better for individuals or families who are in pretty good health, do not visit the doctor often and have a higher tolerance to accept the higher deductible in order to save in the end.

A young couple with a growing family may not want to consider the HSA because their children need to see the doctor more frequently and a PPO covers that event better.

Please call upon the Forbes Insurance Agency at 843-297-8162 and we will more fully develop your understanding of the plan best suited for your needs. Remember to keep in mind that the Forbes Insurance Agency does not work for the insurance companies. They are an independent Agency who represent and work for your best interest.