Health Savings Account: Budgeting for Your High Deductible Insurance Plan

Health insurance is an important part of the family budget, right up there with heating costs, gasoline, groceries and taxes. To complicate matters more, the insurance plans change every year and people are expected to keep up with the changes in cost and plan policy. Health spending accounts are a valuable incentive for high deductible insurance plans and consumers should take advantage of the health spending account if they qualify.

To qualify for a health spending account you must be enrolled in a qualified high deductible health plan. This type of plan, an HDHP, meets the minimum deductibe levels of $1,000 for single and $2,000 for family coverage. In addition, the out of pocket limits must not exceed $5,100 for single and $10,200 for family coverage. Contact your insurance provider to see if the plan your on qualifies.

The health savings account bears interest like a regular savings account with specific tax advantages. Individual (your) contributions to the account can include pre-tax dollars automatically saving you the income tax for the bracket you are in. Others can contribute on your behalf, like your employer or other family members, to meet the maximum allowed contribution. The maximum allowed contribution equals the lesser of 100% of your health plan deductible or $2,650 for single and $5,250 for a family plan. Best of all, the money you save rolls over year to year so there is no pressure to spend all the money before the year ends. Unlike budgeting for gasoline and groceries, we can't always predict what our annual health spend might be so this feature is a huge improvement over other medical spending accounts.

Once the money is in the health savings account what can it be used for? The money from your HSA can be used for qualified medical expenses; this means office visits, hospital & lab work, over-the-counter drugs and prescriptions. Other wellness relatated expenses like smoking cessation and weight loss may be covered too so be sure to check with your health insurance company to get the most out of your savings dollar.

High deductible insurance plans can be scary when you consider the annual out of pocket potential. Using a health savings account goes a long way in addressing the gap and provides significant tax savings on both contributions, interest earned and distributions. On top of all that, managing your own health dollar may have the side effect of better health.