Do You Need a Health Savings Account? HSAs Explained: What They Are and Why You Should Care

Recently, in the increasingly unstable world of healthcare, Health Savings Accounts (HSAs) have become more mainstream. Since their arrival a few years ago, over 2 million people have signed up for these health plans. Is it right for you? Here are a few things to help you in your decision whether to sign up for an HSA:

First, an HSA can significantly reduce the cost of healthcare. At the same time, many people will never actually see any benefit. These are the folks who have to pay their own premiums, like self-employed individuals, who are mostly healthy with little or no medical expenses.

An HSA also gives an element of control back to the customer. It allows them to be the responsible party for health-related decisions. This kind of benefit may not be for everyone, particularly those who prefer not to have to be in charge of every single detail.

HSA's help to lower your taxes. Every cent put into your HSA is taken from your taxable income the same way that IRA contributions are made, no matter whether you spend it or not. The earnings you make in an HSA are tax-deferred, and any withdrawals aren't taxable if you use it to pay for medical-related expenses. Under certain circumstances, new members can almost entirely fund their account with money left over from premiums from a previous, more expensive plan. By putting a large chunk of that savings into their Health Savings Account, the member can take advantage of fast, extra savings with their taxes.

One thing to keep in mind is that you need to hold a qualifying health insurance policy in order to even open an HSA. A big mistake people assume about these plans is that just any insurance policy with a large deductible will automatically allow them to open an HSA. Governmental regulations in this situation, though, clearly indicate otherwise. So make certain yours does qualify, since not every policy that features a high deductible will work; this step is vital, otherwise further research is pointless.

Finally (and this step is common sense) you're required to be insurable so you can qualify for an HSA policy. If you don't have a legitimate, qualifying insurance policy, you have to change insurance plans so you can become eligible for it. Unless the policy itself will fall under a small group plan (which won't be the case for most self-employed individuals), the new policy is going to be separately written up by the insurance company. Unfortunately, because of this, certain pre-existing conditions won't be entirely covered (and some not at all.) At the same time, other insurance companies might cover these conditions for a higher premium. As always, do your research to determine if this is a good option for you.