Health Savings Account is a Great Alternative to Traditional Healthcare Plans

Today there are many choices when deciding on healthcare coverage. One of the new alternatives are high deductible plans associated with Health Savings Accounts. Not only are these plans beneficial to the policy holder, they are also a way for employers to save money on their health insurance costs.

The Health Savings Account (HSA) has only been available for three years. It originated from a Medicare Prescription bill and was signed into law by President Bush. The key qualification to have a HSA is to participate in a high deductible health insurance plan. The deductible must be $2,500 minimum.

The HSA is similar to the Flexible Spending Accounts (FSA) that has been around for years. However, it is the differences between these two that make the HSA a more viable choice. The major downside to a FSA is the "use it or lose it" clause. If the funds in the FSA are not used by the end of the first quarter of the year following the contribution, the owner of the accounts can no longer use the funds that were contributed. Another negative feature to the FSA is that every transaction must be proven. Every time money is used out of the account, documentation must be sent to the account administrator demonstrating the funds were used for a qualifying reason.

The HSA comes with many more freedoms. The money contributed to the account is never restricted to a time frame for use. The funds roll over from year to year; account holders can use the money as needed or save it for future medical expenses. Additionally, it is not the administrator's responsibility to control the use of the funds. The account holder can use the funds as they deem necessary; it is their job to maintain the documentation of each transaction. The funds in the account can even be used for non-qualifying events as well as withdrawals; although a high tax rate and penalty may be assessed at the end of the year.

It is the high deductible that scares many people away from the HSA. The minimum deductible is $2,500 for an employee only plan; the family plan may come with a $10,000 deductible. Although these figures seem astronomical and unaffordable at first, the fact is many people can save money by choosing a HSA. Most HSA policies premiums are significantly less than a traditional PPO or HMO plan. Instead of all their money going to premiums; they can save that money into the HSA for use towards the deductibles.

Consider this as an example: Let's use a premium of $550 a month for a traditional plan. The same plan under a HSA with a $5,000 deductible is $250 a month. This is a $300 a month savings. If that savings is contributed to the Health Savings Account, the total saved for the year is $3,600. Using as an example a person who currently goes to the doctor four times a year at $150 a visit and spends $200 a month on prescriptions, the HSA policy owner would not have any out-of-pocket expenses, the savings account would cover all of it; however, the PPO policy owner would pay $550 out of pocket on top of the higher premium ($250 deductible plus 20% of the remaining $2,750). Additionally, the HSA would still have money saved in account to rollover for the next year.

Another great advantage to the HSA is the amount that is allowed to be saved. All money contributed to the account is tax free. Account holders can contribute up to the amount of their deductible, some plans allow for even more, each year. This is another way to save for the future. By taking advantage of the tax free savings and the rollover benefit on the account, investors can save now for medical bills they will surely incur as they age.

This is a win-win situation for employers as well as employees. Employers that pay for part of the premium for their employees will see a savings as well. Some employers are encouraging their employees to switch to the HSA not only for their benefit, put to save the company money at the same time. A great way to do this is to give your employee's savings accounts a starting point. By depositing a portion of the company's savings into the employee's HSA account, employers are easing the fear of the new program.

Education is the key. Many employees do not understand the HSA. It is up to the company and their Human Resources Department to fully explain the program and its benefits. If you estimate their savings using the plan, the transition will go smoother and both the company and the employee will benefit.