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Role of Health Savings Accounts

The health savings account (HSA) is at the center of the push for more consumer-driven health care. The idea behind the health savings account is that consumers who have more discretion over how their health care dollars are spent will make smarter, and ultimately more cost-effective, decisions. Health savings accounts provide a number of incentives to consumers, including lower costs and significant tax savings.

  1. Help with Medical Costs

    • With the price of medical care and health insurance on the rise, it has never been more important to budget for those costs. When you combine a health savings account with a high deductible health plan, you can enjoy lower monthly premium costs and tax savings as a result. You can take some of those savings and use the money to fund your health savings account. You can continue to build up your fund year after year and use that money as a hedge against a catastrophic illness or injury. The money you set aside can cover the deductible on your health insurance; and once you satisfy that deductible, your health insurance can pay the rest of the costs.

    Budgeting Help

    • Health care spending can be notoriously hard to predict and very hard to budget for. Opening a health savings account provides a way to budget for those high costs while enjoying tax savings and other advantages. You can continue to fund a health savings account year after year, building up a significant balance while taking care of your routine health care costs. Then when something does happen, you have money set aside to pay those high costs. Having money put away in a health savings account can eliminate the need to borrow money or run up credit card charges to pay hospital bills and other charges not covered by your insurance.

    Tax Savings

    • Opening a health savings account is a great way for a small business owner or an independent contractor to deal with high taxes. The money invested in a health savings account is tax-deductible, and opening one can greatly reduce the tax burden for freelancers and others who have to purchase their own health insurance plans on the individual market. For 2011, individuals can contribute up to $3,050 to a health savings account and get a tax deduction. Those with family HSA plans can contribute up to $6,150.

    Incentive

    • The availability of a health savings account can serve as a strong incentive to choose a high deductible health plan over a more traditional plan. High deductible plans tend to have lower monthly premiums since more of the risk is shifted to the insured. These premium savings, combined with the tax advantages a health savings account can provide, can be a strong incentive in favor of a high deductible plan. Some companies offer health savings accounts to employees who opt for a high deductible plan, even offering to fund part of the account on behalf of their workers. High deductible plans are favored by many employers since these plans help to keep health care costs down.

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