|  | Healthcare Industry | Health Insurance

What Is HSA Health Care?

When health-care arrangements known as HSAs were first introduced, their purpose was to give consumers more control of their health-care spending. The argument went that consumers who shopped for health-care services and prescription drugs with their own money would be more cost-conscious, and that eventually consumer behavior would drive down the cost of health care. Whether or not that actually happens, an HSA can be a good investment, both short- and long-term.

  1. Consumer-Driven

    • The law that created the Health Savings Account was passed in 2003 as a way to give consumers more direct control over their health-care spending. The members of Congress who backed the measure argued that consumers who spent their own money on health care, rather than their insurance company's money, would become more savvy health-care shoppers. HSAs are part of the movement toward consumer-driven health care, which also includes health reimbursement accounts and flexible-spending accounts, which are offered by many employers.

    Tax Deductible

    • One big advantage of HSAs over alternatives is a tax deduction for the money consumers put aside in their accounts. Consumers can take this tax deduction even if they do not itemize their deductions.

    Non-Covered Expenses

    • The money in an HSA must be used for medical expenses, and only those expenses not already covered by another insurance plan are eligible. That means you can use the funds in your HSA to cover the cost of the co-payment when you visit the doctor or buy a prescription. You cannot, however, double-dip by paying the full cost with your HSA funds and then submitting a claim for reimbursement by your insurance company.

    Eligibility

    • While an HSA can provide more direct control over health-care spending, these plans are not open to everyone. In order to open an HSA, you must first enroll in a high-deductible health plan. These plans are known as HDHPs in the insurance industry, so be sure to tell your insurance broker or HR department that you are interested in opening an HSA. The individual handling your health plan enrollment can steer you toward eligible plans.

    Investment Options

    • HSA plans are designed to pay current medical expenses, but unlike flexible spending accounts, the unused funds in the HSA roll over from year to year. That gives the HSA an element of investment, and consumers have a number of investment options for their plans. A number of financial institutions, including banks, mutual fund companies and brokerage firms administer HSAs, and the number and type of investment options is determined by the administrator. Brokerage firms and mutual fund companies might allow you to invest your funds in stock and bond funds, while banks might limit your investment choices to money-market accounts and certificates of deposit.

    Age Flexibility

    • According to IRS guidelines, the money remaining in your HSA when you turn 65 can be used for both medical spending and for expenses unrelated to your health care. That rule allows individuals to use their HSAs as an extra IRA account. While the main purpose of an HSA is covering medical expenses not reimbursed by insurance, this investment aspect can be quite valuable, especially for younger workers who have decades to accumulate money in their accounts.

Health Insurance - Related Articles