Traditional Health Insurance Versus a Health Savings Account
Some of the advantages to a Health Savings Account (HSA) are that the contributions to an HSA are tax deferred, the interest it accumulates is tax deferred, and when funds are withdrawn for qualified medical expenses, no taxes are due on those withdrawals. So, there is no better time to learn about HSAs than at tax time.
Adam Hyers of Hyers & Associates http://www.ohioinsureplan.com/ explains the difference between traditional health insurance and an HSA.
What is a Health Savings Account (HSA)?
The easiest way to explain the difference between health insurance and HSAs may be to clarify what HSAs are not. They are not health insurance plans. Rather, they operate much like savings accounts setup at a bank.
And they are always coupled with a high deductible health insurance plan. That is to say, one could purchase high deductible health insurance coverage with or without an HSA attached to the plan. An HSA is exactly that - an account established to save money for future health expenses.
The idea behind HSAs is fairly straightforward. Owners deposit funds into their accounts to be used later for qualified health expenses. Funds can be used for a variety of expenses - including (but not limited to) visits to the doctor, prescriptions and/or meeting the deductible.
Advantages of HSA Compatible Plans
Generally, HSAs will be less expensive than traditional insurance plans. The reason is simply that plan deductibles are higher. Therefore, the insurance company underwriting the plan will not have to immediately cover small, incidental claims. The owner would use funds from the HSA for many of the incidentals - like doctor visits, prescriptions, etc.
In addition, the attached savings account has significant tax advantages versus traditional health plans. Contributions into an HSA are tax deferred and the interest accumulates tax deferred - much like contributions to an IRA. However, when funds are withdrawn for qualified medical expenses, no taxes are due on those withdrawals. In this way, HSAs provide tax advantages to the consumer twice - once when the money is deposited and again when it is withdrawn.
Who Should Consider an HSA Compatible Plan?
Healthy individuals who infrequently visit the doctor are good candidates. Individuals and families on a tight budget, but in need of affordable coverage could also consider an HSA plan. These consumers can pay smaller, minor health costs out of the HSA, but should they have a significant claim, the health insurance coupled with the plan is available once the deductible has been met.
Many employer sponsored group plans are already switching to HSA's to lower their health care premium bills. The rising cost of health care is forcing many companies and small business groups to change insurance plans in order to save money. An HSA compatible plan can be a fair compromise for the employee and the employer. Some employer groups will make contributions to the HSA to encourage employees to make the change.
Who Should Consider Traditional Insurance?
Consumers who want lower deductibles and more in immediate benefits tend to purchase traditional plans. In the insurance industry, this concept is called "first dollar benefit." These are benefits the consumer receives without having to meet a deductible or co-insurance provisions. Examples of first dollar benefits include annual physicals, visits to a specialist or non-specialist, OB/GYN visits and prescription coverage. While newer HSA plans are offering more in first dollar benefits, usually traditional health insurance will provide the most in immediate benefits.
Traditional coverage can be more advantageous for families and/or middle aged or older consumers. These groups may be more likely to have several claims against their policies. They may desire more in immediate benefits. Additionally, they may simply have the resources available to afford more expensive policies.
In summary, there are many health insurance plans available to the individual, family and business group. Choosing the right plan will often times involve balancing cost with benefits. HSA compatible plans can be an affordable alternative to a traditional, lower deductible plan.
Consumers, when working with an experienced independent agent, can usually find a suitable plan that fits their needs.
The author of this article, A.M. Hyers has been working in the insurance and investment industry for over ten years. He owns and operates Hyers & Associates, Inc. an independent insurance agency doing business in Arizona, Florida, Georgia, Illinois, Indiana, Missouri, Ohio, and Pennsylvania. His agency offers insurance products in the individual, family, and small business group marketplace. They use the leading national insurance carriers to quote health insurance, health savings accounts, dental, and vision plans. Other lines of insurance offered include life insurance, disability insurance, and long term care insurance. They use several carriers to quote Medicare supplement plans and Medicare Part D coverage for seniors. Additionally, the independent agents of Hyers & Associates Inc. offer fixed, indexed, and immediate annuity policies for individual and group retirement plans. Health savings account and health insurance quotes for those in Arizona, Florida, Georgia, Illinois, Indiana, Missouri, Ohio, and Pennsylvania. Visit them at: www.ohioinsureplan.com
If you are a nanny would you consider a Health Savings Account instead of traditional health insurance as a benefit at your job?