Is A Health Savings Account Right For Me?
Is A Health Savings Account Right For Me?
In today’s roller coaster economy, many people cannot easily spare the money necessary to provide them health insurance. This has been a recurring problem throughout the history of the United States. In 2003, our government believed they could do their part in lessening the burden on the American people. They created the Health Savings Account (HSA accounts), which would both reduce health insurance premiums and lessen your income tax payment. The health insurance premium is reduced because you must choose the insurance plan with the highest deductible, thus allowing the monthly cost for these plans to decrease. Your income tax payment goes down because the money going into the HSA account is taken out before you pay taxes on it.
While a similar effect was produced by Flexible Spending Accounts, HSA accounts do not offer any risk to the money you put into them. FSAs require you to use or spend the money in your account by the year end or you will lose the funds deposited. HSAs are also different than a Health Reimbursement Arrangement in that an HSA is owned by the individual, and an HRA is owned by a company.
An HSA account stores money for you right out of your paycheck. The benefit to this is that you do not have to pay taxes on the income that has gone into the HSA. You then use this money to cover health costs, such as doctor visits and prescription medications. In order for you to be eligible for an account, you must enroll in a high deductible insurance plan. For an individual, the deductible amount could run $3000; for a family, $6000. The goal then, is to deposit at least $3000 (or whatever your deductible may be) into the HSA during the year, so that you are prepared when medical emergencies arise and you need to spend some money. By doing so, you save hundreds of dollars that would be paid in taxes and you also experience a lower premium. As long as that money is kept in the HSA and only used for medical expenses, you are able to keep the HSA with you, from job to job, tax free.
Having an HSA may not make sense for everyone. For those who are relatively healthy and whose family members have no major health issues, using an HSA is an obvious choice. By saving on the high insurance premiums you may be able to store a little extra cash, tax free for retirement. When healthcare becomes a more significant chunk of your income, you may want to look into specifics about the effect an HSA will have for you. You can, in the end, still save some money from the tax reduction. On the other hand, if you have significant medical bills, make sure to check the HSA plan details as some plans only allow a certain amount of money to be withdrawn each week and there is nothing more frustrating than knowing you have the funds yet are not able to access them. Critics and opponents of the HSA also have concerns about paying for a medical procedure early in the year, before funds in the HSA have had time to accumulate. You may have medical bills that must be paid that do not leave you with any extra money to deposit into the account, leaving the HSA owner always trying to “catch up.”
There is an ongoing debate about whether HSA accounts improve or worsen the U.S. health system, and both sides have merit. Proponents of HSA accounts state that they will reduce the growth of health care costs by allowing the patient some control over their own health care choices, while others believe that it will only exaggerate the issue.
In order to set up an HSA, you can go through your bank or credit union or through your employer's insurer or your PEO. Before you take any action however, make sure you determine whether it will be a benefit for your own personal situation.
For small businesses, a Professional Employer Organization can assist you with access to these types of plans in addition to helping you reduce Workers Compensation and overall healthcare expenditures.
About the Author
Carolyn Stoll is a frequent contributor to PEOcompare and writes about issues that may affect small businesses such as workers comp. She is a founder of PEOcompare.com which helps match small businesses find the right PEO Companies for their particular needs. Her background is in marketing and communications, employee education and training, development of policies and procedures and the ongoing delivery of outstanding service to customers.
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