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Tuesday, March 27, 2007

Health Savings Accounts

Health Savings Accounts were created by an act of Congress to help consumers save money on insurance premiums and provide consumer driven health care to keep overall health care costs down. Under most health insurance plans, the consumer is shielded from the cost of the procedures that the doctor does. He or She will just pay a co payment or deductible and coinsurance and depend on the insurance company to pay the rest. This has resulted in abuses of the system in doctors performing tests that are questionable just to bill the insurance company.

If the consumer has a health savings account, the consumer will be responsible for the entire cost of the medical bill up to the deductible of the insurance plan. Congress hoped that this would cause the consumer to question tests that may not be necessary, and question the prices that their doctor might charge when another doctor might charge less for the same service. The reduction in benefits causes the cost of the insurance to drop thereby saving Americans who have Health Savings Accounts money from insurance premiums.

Congress also made contributions to your health savings account tax deductible like contributions to an IRA account. The idea was that people would put the money that they saved on insurance premiums into this health savings account. If they did not use the money on health related expenditures, the money is theirs to keep.

To simplify the process a bit, the HSA is really TWO separate accounts

  1. High Deductible Health Plan (HDHP)
  2. Health Savings Account (HSA)

Consumers can get a High Deductible Health Plan (HDHP) without opening a Health Savings Account (HSA). The HDHP is a high quality health insurance plan that does not pay any medical expenses until the deductible is met. The reduction in premiums helps to save money.

You can not open an HSA unless you already have a HDHP in place. You do not have to fund any money in the HSA account initially, but if you do pay for your medical bills out of pocket instead of through the HSA, you will pay medical bills with taxed money. The tax break will only occur through bills paid through the HSA account.

The IRS has set annual limits to tax deductible contributions to the HSA. As a result, many insurance agents will recommend getting a deductible that meets the maximum allowable deduction within the HSA. If you have a large family, the maximum tax deduction amount is 5,150/year. So a good plan would be a $5,150 deductible with a 100% insurance payment after that.

These maximums from the IRS change every year. If you have questions about the current rates, I recommend that you call your local agent, or go to find information at websites like this one at Health Savings Accounts. HDHP's have become more desirable recently because the insurance companies have recently reduced their premium rates on these plans. Consumers find savings of 30 -40 percent on their premium by moving from a traditional health insurance plan with copayments to a HDHP. It only takes a couple of minutes to find out if you can save this much on your health insurance premiums too at websites like this one at High Deductible Health Plan.

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