Health Savings Accounts (HSA) coupled with High Deductible Health Plans (HDHP) collectively form a recently instated healthcare program that is designed to present consumers with a tax-privileged method to accrue savings for medical and dental expenses. A HSA offers the consumer a means by which to cover medical expenses until the high-deductible is reached. For instance, if one were to purchase a HDHP with a deductible of $1000, after such an amount is paid in its entirety by the insured, the health plan would then cover 100% (or whichever percentage initially agreed upon) of approved additional expenses thereafter. One can fund on a monthly, quarterly or annual basis. Funds that accrue in a HSA produce interest and “rolloverâ€? from one year to the next, so long as the account has not been depleted.Â
If one enrolls in a HSA as a single individual, the HDHP will not cover any medical or prescription expenses until the deductible has been met. After the pre-set amount of the deductible has indeed been satisfied, the HDHP will either cover 100% or another agreed upon percentage. If one enrolls as a family, one must entirely meet the family deductible before the HDHP will disburse any payments for expenses. Habitually, the “household� or “family� deductible is equivalent to two (2) individual deductibles. To illustrate, an
individual may have a $1000 deductible; whereas a family would have a $2000 deductible before the primary insurance will pay out.
A HSA in conjunction with a HDHP is a suitable plan for both individuals and business employers who are in search of a health insurance plan that will permit the acquirement of tax benefits, as well as, considerable day-to-day savings. Furthermore, HSA’s represent an innovative stratagem, which can decrease healthcare expenses for the present and increase retirement investments for future health care needs. The capital, interest and dividends accrued in the HSA are tax-free until retirement and can be withdrawn at age 65 penalty free, much like an IRA.
The main principle of a HDHP coupled with a HSA is to drive down the cost of health care, and reward those with such a plan with a tax incentive. When one has a HSA they will be more inclined to inquire on the prices of their care, and potentially shop around. This in the end will create a price competition for services, thereby reducing the cost of health care.