Health Insurance Coverage Options - Is a Health Savings Account Right for Me?

You have probably heard a lot lately about Health Savings Accounts (HSA's). HSA's were the cornerstone of President Bush's discussion of health insurance coverage during his recent state of the union address. So you may be wondering what exactly is an HSA, and is it the right kind of health insurance coverage for me?

First of all under the current system you must already have health insurance coverage with a high deductible to open an HSA. However, paring an HSA with this type of health insurance makes these affordable yet high deductible policies more attractive. The idea is that you will put the money you are saving on the cost of a premium into the HSA and then will withdraw those funds to pay for medical expenses until the deductible is met and the full discounts of the policy kick in. HSA's are similar to a 401K or IRA in that you are putting away pre-tax dollars into a specific investment account. The funds will grow tax-free and roll over year to year as in a typical tax deferred account. However, it is designed to help defray the costs of health insurance coverage because instead of building that account specifically for retirement savings, you are entitled to withdraw from that account, with no penalty, to pay for qualified health expenses, such as doctors visits, hospitalization even dental, vision care and prescription drugs. And here is the nice thing about an HSA, after 65 you can withdraw funds for non-medical expenses, so they kind of serve the duel purpose of a retirement fund and helping with health insurance coverage. Currently the maximum contribution is $2700.00 for an individual or $5450 for a family, or maximum of your deductible on your health insurance coverage, which ever is higher. One of the proposed changes of Mr. Bush's would involve significantly raising the amounts of the maximum set asides to cover plans with much higher deductibles.

The main advantage of the HSA, in theory anyway - is that it increases access for both consumers and business to health insurance coverage with low-cost premiums. The HSA itself has the advantage of any tax-free annuity investment. Still while they have their critics, HSA's seem to work best the healthier you are and the wealthier you are. If you are basically healthy your are likely to avoid many of the expenses that would go against the deductible - and the more money you make the more you will benefit form the tax advantages. On the other hand if you have a chronic condition or a child that requires a lot of visits to the doctor your costs are going to add up. Also if you do not like to shop around for health insurance coverage, or are not the type that keeps good records and manages expenses well - this may not be the best coverage for you, but for many an HSA coupled with high deductible health insurance has become a path to affordable coverage.