Health Savings Accounts: Get the Most Out of a High Deductible Insurance Plan

Health Savings Accounts: Get the Most Out of a High Deductible Insurance Plan

There is one basic advantage to purchasing a high deductible health insurance plan -- you will reduce the cost of your monthly premium payments on the plan and have more money in your family’s monthly budget for other things. The downside to this is that if you do have medical bills, you will have to pay that high deductible off first, before your insurance company will begin covering any of your bills. But, there is a way that you can make a high deductible plan work for you: by signing up for a Health Savings Account (HSA).

A Health Savings Account will allow you to put a certain portion of money from your paycheck into this account, before taxes are deducted from your pay. This means that the money will be tax-deductible and you will also have a plan for if and when you need to pay your high deducible. In addition, any interest that the money earns while sitting in the Health Savings Account it also tax-free. There is a limit on just how much you can deposit each year. In 2007, these limits were $2,850 for an individual plan and $5,650 for a family plan.

This money in the Health Savings Account can be used towards any medical expenses you incur, including towards your deductible, co-pays, to pay for COBRA benefits, and sometimes even towards your monthly premiums. A Health Savings Account is only available to those who have a high deductible insurance plan. This means a health insurance plan that has at least a $1,100 deductible for an individual plan or $2,200 deductible for a family plan.

There is an even greater benefit of having a Health Savings Account -- it can also act as a retirement account. Even though you will want to use the money in this account to pay for any major medical expenses your incur, if you don’t use the money, you are free to withdrawal it without penalty after you turn 65 (this is also the age that you can apply for Medicare). You can then use the money freely, anyway you choose and are not limited to using it only towards medical expenses.

This is a great benefit because (assuming you never have to pay for major medical expenses) you will have extra money to use after you retire. And it may even be a hefty amount depending on how old you are when you start your Health Savings Account, how much you put in each month, and how much interest your money accumulates over time. Essentially, a Health Savings Account can serve two purposes, one that can benefit you today should you need it and one that can benefit you tomorrow.

If family finances require you to have a high deductible health insurance plan, then depositing money into a Health Savings Account is a great way to get the most out of your money and make sure you have the money available if you ever do need to pay the high deductible attached to your insurance plan.